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.