Restrictive Covenants - The Traps for Employers
So you now have an employee who has signed an expertly drafted restrictive covenant. Are you safe?
The answer is "yes" as long as you do not do anything wrong.
By this we mean that if you, as the employer, breach the terms of your contract with your employee in a fundamental way then you will cease to have the protection of any part of the contract and in particular you will cease to have the protection of the restrictive covenant.
The reasoning for this is logical and fair. If you do something to "repudiate your contract with your employee" e.g. refuse to pay him his salary; insist on him working in Scotland whereas his contract requires him to work in Truro; insist that he cleans the toilets when he is in reality the Finance Director then you are clearly in breach of the contract yourself.
If it is you who is in serious breach of the contract the employee is entitled to say that your actions have brought the contract to an end and that therefore, if it is at an end, then he is no longer bound by any terms of it either. He will then be released from his restrictive covenant.
Take Advice Early
Thus, providing you are careful, your restrictive covenant will remain valid.
This highlights the importance of taking expert legal advice if you are thinking of getting rid of a senior employee who is on a restrictive covenant.
Almost always you will know some time in advance that you are planning to do away with his services and it is at this early stage that you should make contact with us. We will try to guide you in such a way as to maximise your rights and opportunities generally.
A particular point to watch for is the employee who writes to you indicating that he is "thinking of leaving you and joining a competitor". Unless you respond promptly and carefully you may fall into a trap.
This trap arises because you will want to be sure that you can get an injunction against your employee if he breaches the restrictive covenant. An injunction is what is known as an "equitable remedy". This means that the Court will only give you an injunction providing it is fair and reasonable in all the circumstances for an injunction to be granted.
There are many things which are taken into account in deciding whether it is fair and reasonable but two of those which are most relevant are "delay" and "encouragement".
Taking these two points in turn;
Delay
If you do not act quickly a Court will not give you the urgent remedy of an injunction. In other words if you sit on matters, even for some days, then you may lose the opportunity to get an injunction (although you may still be entitled to damages- if its worth pursuing !)
Thus the existence of the restrictive covenant is likely to discourage (a) your employees from leaving you in the first place and (b) a competitor offering them a job when they see what the contract says.
Encouragement
Similarly if you do anything which in any way encourages the employee to think that you will not seek to stop him (even by ignoring his letters) again it is possible that the Court may say that you have brought the problem upon yourself and therefore you will not get your injunction.
Thus if you get the letter from the employee which says he is "thinking of leaving and setting up in competition with you" then warning bells should ring immediately and your response should be speedy and carefully drafted.
Conclusion
There is no point in spending money on having carefully drawn tailor made restrictive covenants if you lose the opportunity to enforce them by failing to take the appropriate action at the right time. Speak to us early and we will maximise your opportunities.
If you require further information on this topic please contact KEITH TURNER on 01604 622101 or Email: companylaw@turner-coulston.co.uk