What should an employer do when an employee sets up in competition and in breach of their restrictive covenants?

The answer will largely depend upon whether the employer is prepared to embark on litigation or not.

It’s certainly possible to get an injunction stopping ex-employees from competing if the restrictive covenants are reasonably drafted but there are some reasons why this might not be the best solution including:-

(a) expense – legal fees can be high, and

(b) disruption to business while the court process in in motion, and

(c) an employer might send the wrong message to their customers by litigating.

In a lot of cases, it will often be better for the employer to sit back and wait and see what happens first.

If the ex-employee’s new business venture fails (as they often do) then doing nothing will have been the right choice.

If on the other hand the ex-employee’s business is a success then the employer still has 6 years in which to bring a claim for compensation – rather than an injunction – for breach of their relevant employment contract.

This means that if the ex-employee is successful, the employer can sue later on and ask the court to award compensation/damages equal to the amount of profit the ex-employee has made from the clients. This would be a reason for most employers to pop the champagne cork and celebrate!

We advise that employers should generally resist the temptation to panic too soon.

If a business has a strong relationship with its customers, there is a very good chance they won’t want to be doing business with an ex-employee who has set up in competition. They probably won’t like the way the ex-employee has behaved, recognising exactly the same thing could also happen to them, and so there’s a real chance they would resist any approach anyway.