I’ve always found Restraint of Trade Clauses to be a hot topic of conversation when it comes to employment contracts and then when an employee is leaving and going to a competitor. Other than that, they don’t get any further consideration, typically. Naturally, business owners want restraint of trade clauses included to protect their business interests, and then when an employee leaves we are often asked to draft letters to the departing employee reminding them of their terms and conditions of employment in relation to restraint of trade. However, if we are solely relying on a clause in a contract and our other business policies and procedures (the way we do things) don’t support protecting our business interests, is it all a little too late to protect our business interests?
Restraint of trade clauses are contractual clauses that limit one party’s ability to conduct business or work in certain ways, typically to protect the interests of another party. This looks like preventing an employee from working for or starting a competing business for a set period after leaving, restricting an employee from poaching clients or employees, and protecting the sharing of proprietary information.
In my opinion there has always been the challenge of enforcing restraint of trade clauses; how far as an employer are you willing to go to try and enforce a restraint of trade clause? It often incurs significant legal cost and the cost – value of the lost client relationship, or poached employees and the sharing of information needs to be considered. Then there is the what’s reasonable in terms of the reach (geographical area) of the restraint of trade and the time period, which is where we have seen cascading clauses come in to play.
With talk that the government are looking at abolishing restraint of trade clauses, now is the time to consider the longer term implications for your business. Businesses will need new strategies to protect client relationships and sensitive – confidential – trade secret information. Regardless of what the Government do about restraint of trade, there are things you can do now to protect your business interests.
Let’s start at the beginning of the employer – employee relationship.
You’ve found a great new employee, made an offer of employment and have your new employee commencing – everything is rosy! When we are starting a new employment relationship, we aren’t really thinking about the risk of them leaving and taking our clients, poaching our other employees and sharing our confidential information.
This is exactly when we should be thinking about it because once they have resigned in 2 years, 5 years or 10 years time, if we don’t have the right systems, processes and structures in place at the commencement of the employment relationship it makes it a whole lot harder at the end.
For example, have you thought about your business strategy in regard to mobile phones (and other devices)? With changes in technology, we use our mobile phones more for work than we ever have. We access our emails on them, we use them for work calls – the days of each team member having a land line phone on their desk are gone. Hot desking, working from home, flexibility, have all changed how we use mobile phones for work. Our business strategy for mobile phones needs to consider the position the mobile phone is being provided to and the risk when the employee leaves. If you are trying to protect your business relationships and confidential business information, it’s worth considering are you better to provide a mobile device and number rather than paying a mobile phone allowance and allowing the employee to use their own phone?
When we are starting the employment relationship, I see business owners go with what’s easy. The new employee is happy to use their own device if they receive an allowance, they don’t want to carry two devices etc so we go with the easy option and pay an allowance. The issue is, fast forward to when the employee is leaving and you can’t do much about your clients having their personal mobile number and continuing to call them for services/products. Providing a device and number means you can take that back, you get the client calls and have greater control of trying to maintain that business relationship.
There is lots to consider and a business needs to assess all elements such as the increased cost of supplying devices and numbers but if we begin with the end in mind and what we are trying to solve for, our systems and processes are much more robust in protecting our business interests.
In terms of restraint of trade clauses, there are lots of other things to consider and do throughout the course of the employment relationship to protect your business interests, the key is not to solely rely on the restraint clause once the employment relationship has ended because basically, you are shutting the gate after the horse has bolted.
