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Competitive Threats from Employees

Employees and Competitive Threats

The possibility of an ex-employee setting up in competition, joining a competitor or otherwise using information obtained while working for you against your interests may be a significant risk for your business.

The employment contract should preferably deal specifically with restrictions on the employee's use of such information, both during and after employment. Such a restriction (generally by way of a restrictive covenant) may not be excessive where applicable after employment.

It may be also possible to prevent an employee who can damage your business from working either in competition or for your competition during the notice period by means of a restrictive covenant (giving gardening leave). This will normally depend on whether an employment contract gives this power.

Similarly, it is possible, preferably in the employment contract, to restrain the employee from poaching your customers or his contacts or fellow employees.

Generally, these clauses cannot extend beyond what is reasonably necessary for the protection of your business. They must be reasonable as to duration, geographical extent and area of activity. It is important to ensure that the terms of these clauses are not too wide as they may then become unenforceable. The limitations in the clauses should reflect the seniority and responsibility of the departing employees.

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