Although it’s not a common occurrence, a business’s employees do occasionally leave and set up a competing business, breaching a non-compete clause. This can be (a) mildly irritating or (b) very annoying! The approach you will take to this will depend on the effect this “betrayal” will have on your business.

1. Work out whether it’s worth doing anything

Your first step is to work out whether there is any point in responding to your ex-employee’s dastardly act. This will largely depend on the effect the competing business will have on your business, both now and in the future. If you run a café in the Sydney or Melbourne CBD and your ex-employee opens a café in the same general area it’s hardly going to effect your business. You’re already competing with dozens of cafes. One or more won’t have an effect. In such a situation it’s unlikely you’d bother taking action. If, on the other hand, your run an top design agency and your employee is setting up shop using your IP and taking your clients, you’re going to want to get legal on his ass! That’s when you will want to check out the non-compete clause.

2. Review the Employment Contract and Non-Compete Clause

Your next step should be checking out your ex-employee’s employment contract and non-compete clause (if there is one). The clause to look for is post-termination provisions. These are provisions which restrict an employee’s right to set up a competing business, usually within a geographical area and for a specific period of time. Basic Employment Contracts don’t have these sort of provisions, as they’re unnecessary in the majority of cases. If you’ve planned well, on the other, hand, you may have just such a non-compete clause in the Employment Contract in question, which you can then look to enforce.

One point of note with regards to non-compete clauses is that they must be reasonable. If the provisions are not reasonable (i.e. the ex-employee can never work in Australia again), they won’t be enforceable. A time based provision should be for a reasonable timeframe (i.e. 12 months), and the geographic restriction should be reasonable based on the type of business you’re engaged in.

3. Lawyer Up

It’s now time to speak to a lawyer. A lawyer will be able to talk you through you options, which will generally involve sending a letter of demand, seeing what effect it has, then moving on taking further legal action. The strength of your case will depend on your individual circumstances and the non-compete clause you’re relying on, which is why you really need to work with a lawyer at this stage of the process. There is, however, no need for this to be an expensive process. LegalVision’s network of lawyers all work on a fixed fee and can advise you free of charge if your claim has a chance of success.

4. Make sure it doesn’t happen again

Regardless of whether you decide to take action against your ex-employee or not, you should go back through your current employee’s Employment Contracts and work out whether you need to insert non-compete clauses into each of them. This will of course have to be done with their agreement, and it will be a bespoke job as you need the provisions to be specific to your business. The good news is that LegalVision can arrange for these changes to be made to your employment contract for a low fee.

Lachlan McKnight

Next Steps

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