OPINION GUEST COMMENT
Poor redundancy strategies and increased demand for key personnel have contributed to an upturn in corporate talent poaching. The Birmingham office of national law firm, Gateley's has seen a 25 per cent increase in fees generated from cases brought against those breaching the terms of their employment contracts when joining rival companies. Partner, STEVE GOODRHAM heads up Gateley's commercial dispute resolution team. Here, he dispells some of the myths surrounding restrictive covenants
approaches towards their staff. We've also seen an increase in cases where not only specific individuals, but entire teams have been targeted. It's become a more competitive market for recruiting senior talent and with the risk of important clients moving across with ex-employees, businesses need to take a firmer stance in protecting their commerical interests and enforcing restrictive covenant clauses. However, there are a number of myths surrounding restrictive covenants and businesses may be put off pursuing a claim if they are misinformed about the process or the available options. It is a common misconception that restrictive covenants
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aren't worth the paper they're printed on. This is not the case. If drafted correctly, they are legally binding and enforceable. In addition, many businesses believe they'll be unaffected by an employee leaving. Most expect that employee to breach restrictive covenants in relation to soliciting customers but do not believe the employee will be successful. Never underestimate the damage a former employee can cause when moving on. Once the damage is done, it's very hard or even impossible to rectify this. Restrictive covenants are there to protect the goodwill of a business - the customers, staff and key suppliers. Without the goodwill, there is no business. There is a perception that by the time a restrictive
covenant case reaches court it's too late. Take the example of an employee who's soliciting his former employer’s clients in breach of his contract. There’s no point waiting for a year or so for the case to go to trial. It is too late then. The client base has disappeared. Simply being paid damages will not compensate properly for the loss. Depending upon the extent of the breaches, the business may not survive. The only effective legal remedy is to obtain an interim injunction which enforces its terms. These can be obtained within days of being instructed. If the former employee does not comply with the terms, they will be in contempt of court and risk imprisonment and being fined. In our experience, they do comply. Understandably, there's the worry that it will cost too
much to enforce a restrictive covenant. Legal costs must be weighed carefully against the damage a former employee can cause through breaching these. Obtaining an interim injunction doesn’t have to cost "an arm and a leg". There's paperwork to prepare and the supporting witness statement is key. But the court makes its decision based on the paperwork and legal arguments. No one is called to give evidence and most applications can be dealt with in half a day or less. Don’t forget, the losing party is normally ordered to pay the winning party’s costs. It's vital to strike while the iron's hot and there are a number of steps businesses can take to ensure their commercial interests are better protected in the future.
nstability resulting from the increase in organisational restructuring has left many employees feeling vulnerable and demotivated and as a result more businesses are finding themselves exposed to competitor
‘It is a common misconception that restrictive covenants aren't worth the paper they're printed on. This is not the case.’
Businesses should include restrictive convenants within employment contracts and ensure tightly drafted garden leave clauses are built in to limit competitive damage. However, such steps seem pointless if a business is not then prepared to enforce these. We have found that obtaining an interim injunction is the only truly effective way of protecting the business and employers shouldn't be put off pursuing a claim.
For more information on this issue, contact Steve Goodrham on 0121 234 0000 or email
SGoodrham@gateleyuk.com
DECEMBER/JANUARY 2011/12 CHAMBERLINK 5
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