If you can’t beat ‘em, join ‘em – When Post Termination Restrictions Don’t Work
Post Termination Restrictions (PTRs) can be a useful way to protect your business; the purpose is to prevent your employees taking their expertise gained working for you to the competition and to stop them taking your clients and other staff with them. While non-solicitation clauses are generally accepted and enforced the non-compete element can be less reliable as the courts are reluctant to enforce anything that will restrict an individual’s ability to earn a living. The government are considering going further and banning non-complete clauses all together on the basis that it stifles entrepreneurship.
In the professional services sector it is inevitable that employees will move on to the competition at some point. Trying to prevent this is likely to be deemed unenforceable by the courts. There will also always be clients that follow a departing employee if they have built up a good working relationship with them. While good handover and transition arrangements are essential to keep clients happy during periods of change is there anything you can do if they insist on going elsewhere? You can enforce your non-solicitation clause if included in the contract but that will that sour the relationship with the client? Will they still end up going somewhere else and you still lose out?
A different and more unorthodox approach is to consider a fee sharing arrangement with the new employer. This involves coming to an agreement with the new employer that for any clients that follow your ex-employee you get a cut of their fees for a period of time. This time frame could reflect the length of contractual restrictions or be longer or shorter by mutual agreement. The percentage cut and the mechanics of verifying and receiving payment would need to be agreed with the other organisation but it could be a way to make the best of the situation. The new employer gets the benefit of the employee and any clients that follow; the old employer gets some benefit for a specified period of time, while they are looking for a replacement employee and new clients.
Of course this approach will not be appropriate in all circumstances and does need agreement between both parties. This arrangement should be balanced against the use of PTRs and the deterrent these provide, this should not be a carte blanche for employees to leave with all their clients.
Either way you should ensure you review and refresh your PTRs on a regular basis to keep them up to date, specific and relevant.