Liverpool Football Club manager Brendan Rodgers has made
recent headlines concerning restrictive covenants made with Swansea
City. The issue highlights the importance of ensuring that
restrictions in contracts are enforceable. William Walsh from the
Employment Team considers how employers can use restrictions to
protect their businesses.
The issue in question arose over Liverpool's approach
to and ultimate signing of Swansea City player Joe Allen. Brendan
Rodgers left his position as manager of Swansea to join Liverpool
on 1 June 2012. It is reported that, as part of the deal allowing
him to leave Swansea, Mr Rodgers signed a written agreement which
prohibited him from approaching any Swansea players for a period of
12 months. However, barely a month passed before a bid was made for
key player Joe Allen, the midfielder dubbed as "the Welsh
Iniesta".
After expressing their initial disappointment over Mr Rodgers'
conduct, Swansea City allowed the deal to proceed. They took the
commercial approach that the deal was ultimately in the best
interests of the club and were therefore prepared to waive the
restriction.
The decision taken by Swansea that they would take no legal action
over the restriction is one commonly shared by employers faced with
similar problems. Employers often fear that their restrictions
might not stand up to the close scrutiny of the Courts and
therefore take the view that the costs involved in a failed legal
challenge outweigh the potential benefits. However those with well
drafted restrictions should not face the same dilemma.
So what can employers do to protect their business
interests?
If a business has a genuine need for post-termination
protection and for the duration and breadth of the restriction,
there is no reason at all why it would not be enforceable. However
this genuine business need must be backed up with careful drafting
in the contract.
Courts will uphold restrictions if an employer has a legitimate
business interest to protect and if the restriction in question is
no wider than absolutely necessary to achieve that protection.
Conversely, if the restriction is broader than needed, there will
be problems. Therefore employers must apply their minds and give
careful consideration to what their concerns are. If a key employee
were to leave, what damage is likely? Does it actually matter if
they join a competitor if the clients are otherwise protected?
Which clients are actually at risk? How long will it take to
re-establish relationships with clients? If clients cannot be
secured within the first few months, is it realistic that the
relationship will ever be re-established? Can the restrictions be
narrowed to a defined geographical area rather than leaving them
worldwide?
A common mistake made by employers is that they have one standard
form contract applicable to their employees, using the same set of
restrictions for all, often using a pro forma contract provided to
them or downloaded. Standard form restrictions tend to fail on the
simple basis that the employer has not given proper thought to the
matter. There is no such thing as a standard restriction, as every
business and its concerns will be different, as will the issues
applicable to different individuals within the business. It is
improbable that an office administrator presents the same risks to
the business as a senior sales executive.
If employers spend time considering each employee, or category of
employee, carefully and put well drafted restrictions in place,
those restrictions will act as a better deterrent. If the
restrictions are solid and enforceable, there is a much smaller
chance that the individuals will risk breaching them or indeed that
their new employers will risk asking them to do so. They will also
provide the business with good protection and a remedy in the event
that legal action does become necessary.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
