Restrictive covenants – An opportunity to win new business
How many recruiters breach their restrictive covenants when they leave an agency? 5%, 10%, 50%? How many are encouraged to do so by their new employers? And is it a different story if you’re setting up your own recruitment business?
With numerous cases in the courts, it’s clearly a common practice (especially as we know that only a small percentage of cases even make it to court, given the costs involved in bringing and defending such claims). And we’ve all heard those tales – be it the recruiter that left and took all their business (seemingly getting away with it!) to those who have had their fingers burned by ex-employers throwing the rule book at them.
What’s the reality? And how should approach this potentially thorny issue?
Step 1 – Read and understand your contract
It’s amazing how many people will blithely sign a contract of employment, not thinking about the day they may leave the business and what restrictions they’ve just agreed to, swept up in the excitement of their new role. Or those who don’t even have a copy of their contract to refer back to. So, step one is always to have that contract in front of you and to understand exactly what restrictions are in force. Key points to understand are:
Length of restriction i.e. 3 months, 6 months, etc.
Any geographical area of restriction i.e. 3 miles, 5 miles, etc.
Who falls under the restriction i.e. is it clients, candidates, co-workers? How are these defined, e.g. clients you’ve dealt with personally in the last 6 months of your employment?
At this point, we are not asking if the restriction is enforceable or reasonable, simply ascertaining what the restriction means to you.
Step 2 – Do not breach!
We would always recommend you do not breach any restrictive covenants, regardless of whether you believe they are enforceable or not. Simply put, it’s not worth the hassle and potential cost to your new business. As well as simply not being in line with the good faith element of the agreement – put yourself in the shoes of your employer and imagine how you might feel if one of your valued employees decided to leave and set about breaching their restrictions.
And, in my opinion anyway, a restrictive covenant is a great opportunity – to win new business, diversify your client base and get six months’ experience under your belt working with new clients before picking back up the majority of your previous clients – it’s a win, win.
Step 3 – Can you negotiate?
Before you resign, assess your current situation and the likelihood that you may be able to negotiate with your current employer to retain some of your clients or come to an agreement on the length of your restrictive period.
Normally, this will depend on a number of factors:
- Your relationship with your employer
- Length of service
- Whether your employer is particularly litigious
- The potential for your employer to continue working with your existing clients i.e. are they replacing you or can another member of your team step in
- Is your sector their core area of business
- Have you brought clients with you from a previous employment
- Your position in the company
The list is nearly endless! But, a lot of it will come down to gut instinct for you and how well you know your employer. If there is an opportunity to negotiate, think carefully about what you want to get out of it, what is reasonable and what you might have to give up. And always ensure you get any agreement in writing, just in case it is queried further down the line.
Step 4 – If in doubt, seek legal advice
If you are in any doubt at all about your post-contractual obligations, seek legal advice. Case law changes constantly, with new cases coming through the courts and new precedents being set, so a specialist solicitor will always be able to advise you on your particular situation, bearing in mind the current view.It’s well worth spending a couple of hundred pounds now to get the right advice, than simply ‘winging it’ and finding yourself a heap of trouble with a costly mistake further down the line.