When you take on senior members of staff who will play an integral part in your business, there are a variety of issues which need to be taken into account. You may need to consider matters such as intellectual property, benefits, share options, gardening leave and post-employment restrictions. Not only will potential employees expect some of these aspects to be covered in an employment contract, but ensuring that you include certain restrictive clauses is extremely important as a way of securing the best interests of your business.
The value of clarity
When a senior employee joins your business, it may be necessary to offer various benefits which would not generally be available to members of staff with less authority. It’s vital that these benefits – which can include specific bonus arrangements, profit sharing schemes or share options – are clearly stated in the employment contract to avoid any disputes further down the line. But as well as determining the factors which can persuade someone to join your team, it’s important to also agree in advance on matters which can arise if and when they decide to leave. At this point, intellectual property (IP) rights can often become an issue of contention – such as where an employee invents a new technology and then wants to use that technology to start their own business – so the position with regard to IP ownership should be outlined in the employment contract.
When the contract of a senior employee is terminated, it may be useful to impose a period of gardening leave. This requires the employee to spend all or part of their notice period at home whilst continuing to receive their usual salary and benefits. It prevents them from taking up alternative employment (e.g. with a competitor) during this time and keeps them away from confidential company matters. Gardening leave often works best in conjunction with restrictive covenants.
Otherwise known as restrictive covenants, post employment restrictions (PERs) essentially aim to prevent departing employees from causing harm to the legitimate business interests of their former employer. The main types of PER impose certain limits on the following types of actions:
- joining competing businesses (non-compete clauses)
- poaching other employees
- soliciting customers and/or doing business with customers
Although these kinds of restrictions can help to protect companies against former senior employees who have gained an extensive knowledge of the business, in order to be valid it’s crucial that they are used sparingly and remain narrow in their scope. For example, a non-solicitation covenant cannot last for an indefinite period of time (in general no more than 6-12 months) and a restriction which specifies an overly wide geographical area will be unenforceable.
PERs must be designed solely to protect the legitimate business interests of an ex-employer and cannot extend any further than is reasonably necessary to protect these interests. The meaning of a “legitimate business interest” or the question as to whether a restriction is “reasonable” will be decided by the court in any particular case. If it does not agree that a PER is reasonable or decides that it amounts to an unlawful restraint of trade, it will refuse to uphold the restriction.