Work contracts alone may not stop ex-employees from competing

The most effective way to stop talented employees from joining a competitor is to ensure that they enjoy working with you so much that they will stay until it is time to retire.

Short of doing that, there is little you can do to prevent an exodus of talent, because employment contracts stating that an employee cannot work for a competitor for 12 months, for example, usually do not stand up in law.

This is probably why many companies would rather put departing senior executives on “gardening leave” for three months or so to prevent them from working elsewhere, as they are still on full pay.

There is a reason why restraint of trade clauses are generally frowned upon by the courts: Many companies are overzealous when drafting terms restricting employees from joining a “direct or indirect competitor” for a fixed period.

Such terms are usually deemed invalid as they have the effect of preventing any form of employment for the departing worker.

It is also unreasonable because it is hard to know whether a particular company is an indirect competitor due to the varied nature of business.

Moreover, a blanket prohibition makes no sense in cases where a worker signs up for a different job. For instance, a sales manager may join a competitor as a logistics manager who does not engage in sales.

Similarly, some employment contracts contain terms on “non-solicitation obligation” that prevent departing workers from poaching any employee of the company for a fixed period.

Such clauses also do not work because it is hard for any employer to justify why all their employees cannot be touched.

If bosses want to uphold such clauses, they would have to show why everyone in their companies are indispensable or difficult to replace, a hurdle that is surely impossible to clear.

Routine work is not protected

There is a reason why the law favours employees more than employers: Not everything that a worker does in your company is top secret because the law does not protect routine business practices.

For instance, if you are hiring an operations manager to run your business, it is only natural that he is given information on your main suppliers and customers so that he can perform his task.

If the manager resigns, there is little you can do to stop him from approaching the same business partners he befriended during his employment.

A warehouse manager for an e-commerce company was sued for doing this, but the High Court dismissed the suit because the manager did not copy contact lists or other documents from his former employer.

Indeed, the court ruled that employees were entitled to use the knowledge and skills they had developed during the course of their work in their new jobs.

It is only human for a disgruntled employee who is serving notice to sometimes do things that are unfavourable to the boss, but not every such action is deemed a breach of an employment contract.

For instance, a departing employee who suggests to other staff that they should consider coming to work for his new company is not doing anything wrong.

Similarly, he is not breaching his employment contract if he tells customers that he is moving to a new company and hopes for their support.

Taking preparatory steps to compete with a former company will not constitute a breach on the part of the employee.

The law makes a distinction between actions that are “preparatory to future competition”, which are allowed, and “actual competitive activity”, which is not permissible.

So setting up a new company and registering its website would not itself cross the line into competitive activity. But an employee who diverts business to the new company while still working at the old one is likely to run afoul of the rule.

The lesson for employers is simply this – if you are so worried about employees leaving, how about putting in more effort to become better bosses so that more talents would want to work with you instead of leaving.

Source: Straits Times © SPH Media Limited. Permission required for reproduction.

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