Breach of Contract by an Employee

It can be an exceptionally stressful situation when there has been an alleged breach of an employment contract, for either party. For you as the employer, there may be a risk of reputational and/or financial damage to your business.

In circumstances whereby you believe that there has been a breach of the employment contract, it is important to get advice as soon as possible to understand your position. Obtaining early advice can help to reduce the risk of further damage or liability.

At TV Edwards, we can guide you through the process if you believe an employee, or former employee, is in breach of their employment terms, and assist you in obtaining a fast resolution in order to minimise any damage caused.

What is a restrictive covenant?

A restrictive covenant is a clause (or set of clauses) that are incorporated into an employment contract which seeks to restrict the actions of that individual after termination of their employment with the business.

Departing employees (particularly those that are senior) are likely to have knowledge of the ‘trade secrets’ and confidential business operations of your business, or may have built relationships with some of your key customers. In order to protect your legitimate business interests, restrictive covenants can play an important role.

Restrictive covenants ordinarily fall into one of the following categories:

• Non-competition: Such clauses seek to prevent an employee from working for a competitor for a set period of time (and sometimes within a set geographical location) after termination of their employment.

• Non-solicitation or non-dealing of customers: Such clauses seek to stop the employee from having contact with customers (that they had dealt with during their employment) for a set period of time.

• Non-poaching of key employees: Such clauses seek to stop a former employee from approaching current employees to entice them away from your business to a new business.

Restrictive covenants will ordinarily last for between 3-12 months, usually depending on the seniority of the employee.

How restrictive can restrictive covenants be?

The general position, adopted by the courts, is that post-termination restrictive covenants are invalid on public policy grounds as being in restraint of trade, unless they are being used by the employer to protect a legitimate business interest. 

In circumstances whereby an employer is seeking to protect a legitimate business interest, restrictive covenants can be a useful tool to do so, when used in the right manner.

A restrictive covenant must not be any more prohibitive on the employee than is reasonably necessary, in the circumstances, to protect the employer’s business interests. If the restrictive covenant is too prohibitive then it is likely to be deemed unenforceable by the courts. A legitimate business interest is likely to include (but not limited to) customer information, supplier information and confidential information (such as trade secrets). 

The enforceability of any restrictive covenant depends on the specific circumstances of each case; however, courts may consider the following factors when making their determination:

1. What legitimate business interest the employer is seeking to be protected. In that an employer cannot seek to restrict an employee just “for the fun of it”. An employer must be able to demonstrate that the employee’s restricted actions, if undertaken, would have a detrimental effect on the business. 

2. What the employee’s position was within the business. In that it is likely to be more reasonable to impose greater restrictions on a senior employee, who is in regular contact with customers, as opposed to a more junior member of staff.

3. Whether the employee can seek alternative work in their chosen profession or industry. In that the restrictive covenant(s) must not create a “blanket” ban on the employee seeking alternative work in their chosen profession or industry and prevent them from reasonably making a living.

4. Whether the restrictions are no more than are reasonably necessary, in the circumstances, to protect the business interest. In that if the restrictions are too wide, for example if they were to seek to restrict contact with any customers whatsoever, then they may be deemed unenforceable by the courts. 

Can I completely prevent my customers from going to work with a former employee?

The short answer is, unfortunately, no. Whilst there are certain steps that you can take to decrease the risk of this (such as putting in place the restrictive covenants outlined above), ultimately you cannot prevent a customer from choosing who they wish to transact with of their own free will (i.e. without any enticement from the former employee).

If, however, a former employee was to pro-actively contact your customers and seek to entice those customers away from your business (i.e. those customers did not determine to do it of their own free will), then it is likely that you will be able to prevent your former employee from doing this if you had the correct restrictive covenants in place in the employee’s contract of employment.