When an ex-employee goes to a competitor or starts poaching clients or staff, employers often look to a restraint of trade clause to protect key business assets such as client relationships or company confidential information.
Often a quick decision needs to be made: apply to the Court to stop the ex-employee, or wait and sue
An enforceable restraint of trade can be a key business asset, giving an employer time to recover when a senior employee has left the business for a competitor. Like a good insurance policy, it’s a big relief to have it when you need it.
Australian law regarding restraints of trade has its history in
Drafting and enforcing post-employment restraints has a lot in common with good medicine.
It is necessary to prescribe only the “minimum effective dose” – the amount necessary to produce the desired outcome with minimum side effects. Draft a post-employment restraint too narrowly, and it provides no remedy. Draft a restraint too broadly, and toxicity sets in – it won’t be enforceable.
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So, your star employee has resigned. What happens next can be crucial for your brand.
The way a business responds to the resignation of a star employee is a touchstone of successful HR leadership. Employees, competitors, customers, and other key stakeholders (as well as your falling star) will be all eyes and ears about how you (HR) and senior management react to the news. HR 101 teaches us that recognising an employee’s decision to move on is part and parcel of business reality – but is there merit in leveraging the process further?
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When a key employee subject to an employment restraint leaves a business to join a competitor, fast decisions need to be made to protect client goodwill or guard against misuse of confidential information.
The more leverage an employer has against the former employee and his or her new employer, the better the prospects of negotiating a sensible solution quickly or, failing that, taking successful legal action.
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An enforceable restraint of trade can be a key business asset. Or some might think about it as an insurance policy. The capacity to preserve customer connections, protect confidential information and discourage key executives from setting up their own business or moving to a competitor can be critical to information rich businesses operating in a competitive market. As we pointed out in our second blog piece on post-employment protections, ensuring the currency of your restraint provisions is an important exercise in risk management.
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In the latest of our series of post-employment protection blog posts, we consider the compliance and regulatory issues that need to be thought through when drafting an effective post-employment restraint.
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Following on from our first blog on post-employment protections, we will now look at the different types of restraint, and work through a checklist of questions employers should ask themselves when drafting a restraint to make sure it’s the right fit.
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Drafting and enforcing post-employment restraints has a lot in common with good medicine. It is necessary to prescribe only the “minimum effective dose” – the amount of medication to produce the desired outcome with minimum side effects. Draft a post-employment restraint too narrowly, and it provides no remedy. Draft a restraint too broadly, and toxicity sets in – it won’t be enforceable.
In our series of post-employment protection blog pieces, we will tackle each of the main legal and commercial issues involved in drafting and litigating post-employment restraints and unpack our Post-Employment Protections Legal Dimension map. We will examine best practice approaches and the tactical issues that need to be thought through.