Companies Failing To Update Or Enforce Restrictive Covenants For Senior Personnel

Firms At Risk Of Losing Clients And Confidential Information To Competitors


David Shirt, Press Officer | 0161 838 3094

UK businesses are at risk of losing clients and confidential information to competitors by failing to regularly review and enforce the restrictive covenants contained within the contracts of senior employees - says new research by national law firm Irwin Mitchell.

According to Irwin Mitchell, almost half (45%) of businesses have not audited the contracts of their senior employees in the last year to ensure that they are protected against confidential information and customer connections falling into the hands of competitors.
The survey of 250 business leaders also found that despite over 75% of companies using restrictive covenants within their contracts, only 3% claim to have themselves been held back from recruiting senior employees for fear of being accused by a competitor of inducing a breach of contact.

Designed to protect companies, the contracts of senior employees often incorporate post-termination obligations to ensure that they do not do certain things when they leave. These restrictive covenants can amongst other things seek to prevent ex-employees from competing for work in certain areas, poaching staff, or using confidential information for commercial gain.

Commenting on the survey results, Christopher Tutton, an employment partner at Irwin Mitchell, said:

“Given that the vast majority of companies have restrictive covenants in place, it is interesting to note that so few companies have been held back from recruiting senior employees. It certainly seems to suggest that post termination obligations are either not well-drafted, or are not being effectively ‘policed’ by employers that lose staff.”
Discussing the dangers of not updating restrictive covenants, Chris added: “Many businesses are in danger of sleepwalking towards a scenario where they could easily lose clients and sensitive company information to competitors.
“Recent case law developments have highlighted the importance of ensuring that covenants are properly drafted if they are to be enforceable. It is therefore vitally important that a company’s contracts contain up to date restrictive covenants and confidentiality clauses, particularly as in a buoyant jobs market, the risks of staff leaving are high.”
Irwin Mitchell’s latest research also revealed that a material proportion (12%) of businesses surveyed had been the victim of an employee moving to a competitor and taking clients and/or confidential information with them. 
Coupled with the fact that 26% of businesses surveyed said that they were more likely to litigate now for a former employee breaching their covenants than they were 12 months ago, suggests that businesses are increasingly aware of the issue.
Chris said: “More than one in 10 businesses have been affected by the loss of clients or confidential information following the departure of a senior member of staff. Given the improving job market, these figures should start ringing alarm bells. Business leaders should remain vigilant and take appropriate measures to ensure they can respond quickly in the event of employees or teams leaving.”