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Restrictive Covenants: a case study

This case illustrates a typical situation where we are called on to assist clients with departing employees who pose a competitive threat

The challenge

Our client, a market-leader in the food & drink sector, sends its products by mail to customers who place online or telephone orders. Their telephone sales team are key, with good sales people building solid relationships with customers, increasing both the frequency and value of their orders.

When two long-serving team members left for different competitors within a couple of weeks there was the potential to lose significant business. These fears became concrete when one or two important customers contacted the business to complain that they were being approached by the competitor firms – they believed our client had passed on contact details without permission.

What needed to happen?

Our client knew it needed to act quickly, and immediately took steps to ascertain what evidence there was of removal of client details as well as bringing us up to speed. The clear objective was to minimise the risk to the business as quickly as possible, without incurring huge legal costs.

What did Menzies Law do?

On reviewing the post-employment restrictions in these ex-employees’ employment contracts it became clear that there were some problems with the wording of these clauses, which had been in the company’s standard employment contracts for years. Nonetheless, we sent strong letters to both former employees and their new employers, relying on the contractual provisions, common law duties and data protection legislation.

One competitor immediately agreed to all our requests – problem solved. Citing the weaknesses in the restrictive covenants, the larger business played hardball for a little longer, and we geared up to launch court proceedings if necessary. Ultimately, it was the data protection angle which led them to give in and provide appropriate reassurance that they would stop contacting our client’s customers.

As a follow up, we advised our client on putting in on new, more appropriate, restrictive covenant clauses into its employment contracts to deal better with the same problem if it arose in the future. We also helped the company to liaise with the complaining customers in relation to their data protection concerns, which both assisted our case with the competitor and left the customers happy.

Outcomes for our client

The prospect of dealing with an ex-employee ‘stealing’ clients is always a stressful one.  With our help our client was able to resolve the problem in a rapid and cost-effective way.  They were also able, ultimately, to solidify their relations with existing customers and to put better protection in place for the future.

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