Mitigating the risk when an employee leaves

15 Jan 2019 By Sarah Armstrong

Sarah Armstrong outlines the main risks that can be posed by a departing employee and explains how employers can handle them

Risk is defined in the Oxford English Dictionary as “a situation involving exposure to danger”. In an employment context, there are many types of risk which arise both before, during and after the employment relationship. 

Before the employment starts

Good risk management starts at the very beginning of the employment relationship. It is crucial that a suitably worded contract is issued to, and signed by, the employee before their employment starts.

Specific clauses – commonly known as ‘post-termination restrictions’ or ‘restrictive covenants’ – should be included in the employment contract. The clauses should be carefully drafted and tailored to the employee. A ‘one size fits all’ approach should never be adopted. 

When drafting these clauses, it is important to identify the business interests which might need protection if the employee were to leave. For example:

  • Might the employee have access to confidential information? What type of information?

  • Might the employee have dealings with customers or suppliers? 

  • Might the employee be in a position to persuade key employees to leave the business? 

Once the business interests needing protection have been identified, it is necessary to consider for how long those interests would need protection. What is the shelf life of the confidential information? How long will it take to consolidate customer relationships? The duration of the restrictions must be no longer than is necessary, and you will need to be able to justify why the business requires protection for this period. 

Ensure the geographical scope of the restrictions is no wider than is absolutely necessary. If the only real market for your goods or services is in Lancashire, for example, a UK-wide clause may be considered too wide by the courts. 

Limit the restrictions to the customers or suppliers with whom the employee dealt personally in a defined, limited period before the employment ended. 

Restrict any obligation on poaching staff to those whose departure would cause damage (such as senior or client-facing employees).

Do you have other group companies for which the employee may provide services during their employment? Ensure the contract protects them too. 

Consider including specific wording to deal with LinkedIn and other relevant social media connections made during the employment.

During employment

Keep the wording of the restrictions under review, particularly where the employee’s role changes or the employee is promoted. If you want to update the restrictions, or introduce new ones, think about what you will give the employee in return for agreeing to the new restrictions (this is known as ‘consideration’). Restrictions introduced during employment without consideration will not be enforceable.

Work with your IT department to ensure proper systems are in place to detect any data theft (such as the export of contact details onto a USB drive). Consider whether you will allow employees to use personal devices for company business and put a clear policy in place. 

When the employee leaves

At the exit interview, ensure all confidential information and company devices have been returned and deactivate all access codes and passwords. Remind the employee of the restrictions which will continue to apply after their employment ends, and confirm this in writing. 

If you’re concerned an employee is leaving to work for a competitor or to set up a competing business, don’t assume the worst. Identify the threat: what has your employee been doing? Are other team members involved? Take steps to minimise the impact on customers, suppliers and your other employees. 

Gather evidence: search for evidence to show your former employee is breaching their obligations and that this is causing, or will cause, damage to your business. Quarantine their work computer, smartphone and other electronic devices and arrange for them to be examined by a forensic expert who will be able to safely retrieve evidence.

If you wish to take legal action, move quickly, as any delay can damage your prospects of success. To act swiftly, your legal team will need to understand the nature of your business, the market in which you operate and what part of your business is threatened by the activities of the (former) employee. They will also need to review the evidence you have collated and will be able to advise you about the best way to protect your business.

By mitigating employment risks in this way, you should be able to limit your company’s exposure – better protecting it from key dangers caused by exiting employees.

Sarah Armstrong is a commercial dispute resolution associate at HRC Law LLP

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