Although it’s not a common occurrence, your employees may occasionally leave and set up a competing business, breaching a non-compete clause. An employee may also breach a non-compete clause by leaving to work for a competitor that operates within close proximity to you. This can be frustrating for you as an employer. This article outlines four steps you should take to prevent your employees from breaching a non-compete clause.
1. Work Out Whether You Should Act
Firstly, you should consider if you will derive any benefit from responding to your ex-employee’s conduct. This will largely depend on the effect the competing business will have on your business, both now and in the future. It is crucial that you take action if your employee is using your intellectual property or directly taking your clients, as this will have a serious effect on your business interests.
2. Review the Employment Contract and Post-Employment Restraints and Obligations
If you decide to proceed with responding to your ex-employee, you should start by checking their employment contract. You should review it for any:
- post-employment restraints; or
- post-termination provisions.
Post-termination provisions are clauses that restrict your employee’s rights to:
- set up a competing business;
- work for a competing business; or
- solicit or canvas clients.
They will usually apply within a geographical area for a specific period of time.
When hiring new employees, you should also ensure to include these clauses within your employment contracts. Standard employment contracts may not contain these provisions, but they are integral for the unlikely situation that an employee breaches a non-compete clause. Additionally, their inclusion may encourage an employee to avoid competing with your business.
However, any post-termination provisions in your employee’s contract will only be enforceable if they are reasonable. Any unreasonable clauses, such as that your employee cannot work in Australia again, are not applicable. You should ensure that both the time frame and geographic area that the provision applies to are limited and relevant to your type of business.
Continue reading this article below the form3. Find a Lawyer
It is essential that you hire a lawyer to help you in responding to your ex-employee.
A lawyer will be able to talk you through your options, which will generally involve:
- sending a letter of demand; and
- taking further legal action if necessary.
The strength of your case will depend on your individual circumstances and the post-termination clause you are relying on.
As an employer, understand your essential employment obligations with this free LegalVision factsheet.
4. Take Preventative Measures
Regardless of whether or not you decide to take action against your ex-employee, you should go back through your current employee’s contracts and evaluate whether you need to insert any post-termination restraint and obligation clauses. You must do this with their agreement and the provisions should be specific to your business.
We recommend that you seek legal advice when proceeding with amending your employment contracts.
Key Takeaways
An ex-employee breaching post-employment clauses may become an issue for your business if they:
- start working for a competitor;
- solicit clients; or
- set up their own business.
However, it is not necessary to act in all circumstances. First, you should assess the situation and, if the breach is adversely impacting your business, consider the employee’s post-employment obligations in their contract. You should also speak with a lawyer regarding your options in responding to your ex-employee and amending your existing employment agreements as a preventative measure.
If you require assistance in responding to or preventing a breach of a non-compete clause, our experienced employment lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
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