Restrictive Covenants : Protecting Your Business in the Future
by Kate Foreman
One of the most common problems when brokerage employees leave a firm is the potential for loss when they poach clients – and sometimes other staff . We still frequently see contracts that are inadequate in terms of restricting the behaviour of employees and their new employers after they have departed . This was highlighted earlier in the month by the case of Romero Insurance Brokers v Eastwood & Partners and Andrew Templeton . Eastwood & Partners boss John Eastwood denied using confidential information obtained by a new employee to poach clients from rival broker Romero .
Romero v Eastwood and Templeton
Romero alleged that Templeton , who managed Eastwood & Partners ’ Halifax office , breached the terms of his contract by contacting his old clients at Romero and asking them to move to Eastwood . Eastwood responded by alleging that Templeton had approached people he already knew without using any confidential information about clients . The simple fact is that most of a firm ’ s employees will have access to confidential client information – whether or not they are client facing – and , as such , may be of great value to a new employer . It would be nice to think that all brokers stand by the rules of client confidentiality and fair play in business , but sadly this is often not the case and there are unscrupulous brokers who will put pressure to bear on a new employee to ‘ bring clients ’ across to them . irrespective of whether the individual is client facing or not – and please don ’ t think that it couldn ’ t happen to you because you have a small family firm . The truth is that some of the most hideous situations occur when families fall out . You should simply consider the contract to be part of your good corporate governance and another tool at your disposal that will enable you to ensure your business is protected .
Once you are satisfied that you have an appropriately constructed contract , containing the relevant clauses you should ensure that when an employee gives notice they are reminded of the undertakings that they have accepted , preferably by letter . ( Please note that even if you have an employee who refuses to sign the contract this will not protect them : if they have been working for you and receiving pay they are considered to have accepted the terms of the contract ).
Additionally , you should write to the new employer to bring their attention to the relevant clause in the contract , in order to remind them that they have a legal responsibility not to encourage employees to poach clients from their previous employer for however many months the contract states . This is generally no more than 12 months .
What if they ignore it ?
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What happens if the ex-employee and new employer ignore the reminder and continue to poach clients and / or utilise confidential client information ? You should contact a specialist employment lawyer who will be able to help you to enforce the restrictions in the High Court . The truth is , most cases don ’ t get that far , but you should be very clear with employees and new employers that you are prepared to protect your business at all costs .
So how can you ensure that this doesn ’ t happen in your firm ?
The first thing to consider is how well written your contract of employment is , both in terms of a confidentiality clause and post termination restrictive covenants . You should have these in every contract ,
Ultimately , Judge Sir Raymond Jack concluded that : “… it was reasonable for Romero to seek to protect its client connection with a 12-month restriction against solicitation by Mr Templeton in the way Romero did ,” and confirmed that the restrictive covenants were enforceable . The parties agreed £ 110,000 in costs and damages , so it really is worth ensuring that you have the relevant restrictions , correctly worded , in place in your contracts of employment .
If you need help with getting it right , contact the RWA HR Helpline on 01604 709509 .