Getting your house in order…departing executives

What does the employment contract say?

Don’t assume that the employment contract contains any restrictive covenants or that those covenants will be enforceable. It will be important to check whether (a) there was consideration given for any restrictions (b) whether the restrictions go no further than is reasonably necessary to protect the employer’s legitimate business interests (c) that the employee didn’t leave in response to a repudiatory breach of the employment contract.

Do your employment contracts provide you with additional protection in relation to sensitive business information such as customer details and price lists? If so, these provisions may bolster your position beyond the more limited common law protections available once an employee has left a business.

Reminding departing employees of the provisions of their contract which will survive the termination of their employment should be part of exit processes.

If you require advice on employment law matters, assistance with contracts, HR policies and procedures, our team can help.

 

Seeking injunctive relief

In many cases, the most effective way of preventing a former senior employee from breaching their restrictive covenants is to seek injunctive relief from the court. In order to obtain injunctive relief, it is essential to act quickly, otherwise you may prejudice your ability to seek this remedy. Ensure that those responsible for making decisions about the steps to be taken understand the importance of doing so as quickly as possible.

 

Protecting your information

Do your IT systems allow you to track who has had access to confidential databases and other documents and what their activity has been? If a breach of a restrictive covenant or confidentiality provision is suspected, it is important to gather credible and forensically sound supporting evidence as quickly as possible. This may require you to enlist the assistance of your IT department or an external IT provider to ascertain if important documents such as pricing or customer details have been sent on to an external email address.

 

Are there any other agreements to be considered?

Bear in mind that there could also be other agreements with the company that may contain relevant provisions restricting a departing executive from working for a competitor or from poaching staff/customers. For example, shareholders agreements and share option agreements should also be checked. These may also have formalities that need to be followed to acquire shares, so these should be reviewed to ensure any relevant processes are triggered within the relevant timescales.

 

Cementing relationships

Whilst enforcement of restrictive covenants may be a powerful tool in appropriate circumstances, obtaining injunctive relief can be an expensive option. Often the most effective solution is to ensure that relationships with customers, suppliers, or staff that are likely to be affected by the departure are quickly cemented so that they remain loyal to the company and do not feel inclined to follow the departing employee.

Your employment contracts may entitle you to place the departing employee on ‘garden leave’ for the duration of their notice. Taking this option may restrict their interaction with clients and customers prior to their departure, although the time spent on garden leave in some circumstances may be deducted from any post-termination restricted periods.

 

The next steps

If you need further advice about enforcing restrictive covenants, then contact our Dispute Resolution team today. You can also find out how our employment team can support your HR team.