Future-proofing your employment contracts

Posted on November 18, 2019
Posted by Claire Woolf

employment contractsJanuary’s traditionally a popular month for staff to move jobs and the new year may bring both departures and new hires for your business. Hiring someone new is exciting and nobody wants to dwell on an end to something that hasn’t yet begun. But it pays to think ahead when drafting your employment contracts; your staff will gain intimate knowledge of your business, and could use it to their advantage and your detriment if and when you part ways. Breaking up is hard to do, but it’s easier if you’re prepared for it.

For detailed guidance about employment contracts and templates you can use for your new hires, see Employment contracts.

How to future-proof your employment contracts

There are different steps you can take when you’re both onboarding and offboarding staff to make sure it’s a clean break when they eventually leave.

1)     Onboarding staff

If you’re hiring an employee, the most important thing is to put in place a well thought out, comprehensive employment contract at the outset; you can’t slot in extra clauses once your staff have started working for you unless you get their consent.

To protect your business, you can include what are known as ‘restrictive covenants’; clauses that restrict what your employee is allowed to do for a particular period after leaving your business.

But bear in mind that writing something into a contract doesn’t automatically mean you can rely on it. If it comes to the crunch and your ex-employee starts doing something the contract says they shouldn’t, you may have to convince a court that what you wrote in the contract was reasonable.  Restrictive covenants are most likely to be seen as reasonable if they’re as limited as possible and tailored to the individual; so it’s not a good idea to use a blanket approach in all your employment contracts. This means that when you’re hiring a new staff member,  you’ll need to think carefully about what business interests you might want to protect in the future.

Here are some things you should be thinking about…

a)     Is there confidential information you need to protect?

Whilst they’re working for you, your employees have a duty of confidentiality towards you, even if it isn’t spelled out in their contract. But once they leave, they’re free to spill the beans on most things unless you have a contract that stops them. If you have specific and identifiable information that you want to protect, that’s genuinely confidential, include a confidentiality clause in the contract that spells this out.

Alternatively, you could consider putting the employee on garden leave for a period of time after they hand in their notice. During this time they are still employed, so owe you total confidentiality, but they can’t attend work or access your systems, so their knowledge of your business won’t be up to date once they leave. Again, provide for this in their contract.

b)     Are you at risk if they joined a competitor or set up on their own?

You can include a ‘non-compete clause’ which stops your employee from working with a competitor or setting up their own competing business. However, you can’t just include this as a means of stopping valuable employees from taking their skillset elsewhere; you’ll need to be able to justify why it’s necessary. It’s most likely to be appropriate for senior staff with access to sensitive or commercially critical information, and you’ll need to be specific about who, what and where.

c)     Are you worried about them poaching clients or customers?

Consider a non-solicitation clause, which stops your employee poaching your clients or customers, or a non-dealing clause, which stops your employee working with your clients or customers, even if they’re approached first. Clauses like these need to be as tight as possible; if all your clients are based in London, you’re unlikely to be able to justify a restriction that covers the whole of the UK. Bear in mind that if a non-solicitation clause will do the job, it probably won’t be reasonable for you to include a more onerous non-dealing clause too.

d)     Is there a risk of them taking other staff with them?

Consider an anti-poaching clause, to stop your ex-employee poaching your remaining staff. This is much more likely to be reasonable for senior members of staff who have a certain level of influence over junior staff in their team.

In all cases, time is an important factor. Whilst there’s no need to place a time restriction on confidentiality clauses, the other types of clause mentioned above must be time limited, and in most cases it won’t be reasonable to extend them for more than 12 months.

Our template employment contracts contain restrictions you can tailor to your needs. For full guidance about using them, and more information about all of these restrictions, see Employment contracts.

2)     Offboarding staff

There are things you can do once your employee announces they are leaving to ensure that your carefully drawn up contract is effective.

a)     Make sure everyone’s on the same page by:

·  Reminding staff of any restrictive covenants in their contract and ensuring that they’re aware that breaching them may lead to legal action.

·  If you know that they’re planning on working for one of your competitors, consider writing to that competitor to make sure they know about the restrictive covenant too. If they knew about the covenant and encouraged your ex-employee to break it, you may be able to sue them too.

b)     And if the worst happens and the employee breaches the contract, act quickly!

You might be able to get an injunction from the court to stop them. Alternatively, you might be able to get damages if you’ve suffered losses because of the breach. Be careful not to breach the employment contract yourself (eg by firing your staff member without giving them enough notice) as if you’ve breached the contract you might not be able to rely on the restrictions.

You’re likely to need a specialist lawyer to help you; for access to one in a few simple steps, use our Ask a lawyer service.


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