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“My best employees are starting up in competition against me – what can I do?” “My best employees are starting up in competition against me – what can I do?”

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Jul 12

“My best employees are starting up in competition against me – what can I do?”

Written by Jonathan Mortimer
Consultant Partner

DDI: 01423 726608
M: 07850 993952
E: jonathan.mortimer@raworths.co.uk

I overheard two businessmen talking about departing employees on the train, how there is little you can do about it and how restrictive covenants, according to them, are not worth the paper they are written on.  That is the perception of so many employees or employers.  However, there has been a major shift in the law in recent years that supports the interests which the employer is seeking to protect.

When growth within the economy is slow, people become dissatisfied with their lot.  Incomes are not as high and bosses are not retiring quite so early, giving opportunities for younger members of the team.  As a result, individuals are more prone to saying to themselves: “I know how to do the job just as well as my boss and make more money”.

Many members of staff may resign at once, it may transpire that the leavers have been planning the departure for months in your time, they are using your client database and they have even got your major clients to go with them.

The first line of attack are restrictive covenants which may prevent competition at least for a period.  For example, a right to impose ‘garden leave’ on an employee is a useful tool in taking the individual out of the market completely for a period and providing time for your business to get used to managing without the individual.

Setting up in competition can quite easily include use of your confidential information and If we can prove your employee is doing so we have a chance of restraining the individual.  For example, trade secrets can be protected, as can new product lines being prepared for market.  However, you cannot prevent an employee from using the experience or greater skills he has gained in his employment for the benefit of the competitor.

So if we can establish a breach of a restrictive covenant or misuse of confidential information, what rights do we have ?  We have recently dealt with a number of so-called springboard Injunctions which restrain the employee for the length of time it would have taken the employee otherwise to prepare to compete.  So if your former employee has effectively spent two months preparing to set up in competition whilst employed by you, the Court can actually place an injunction on the individual saying that, even though his or her employment has now come to an end, he cannot compete with his previous employer for two months into the future.  In effect, it negates the unfair competitive advantage which the employee has obtained based upon time or disallows him the springboard which they have created unlawfully.

It is also rarely the situation that an employee is acting on his own when setting up in competition.  The chances are they will have help from other recently-departed employees or even members of staff still with you.  Your competitors may also be behind the disruption.  All these parties can be the subject of legal action

So what can an employee legitimately do to prepare to set up in competition while still employed ? Our best view is that they can think about it, talk about it, carry out research but that’s about all.

If you need any help on dispute resolution issues, contact Raworths, telephone 01423 566666 or visit our offices at Eton House, 89 Station Parade, Harrogate HG1 1HF. Alternatively you can contact Jonathan by email – jonathan.mortimer@raworths.co.uk.

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