Employees likely to breach post-employment restrictions: Why do we keep walking them?

Surely a more commercially astute decision would require the employee to serve a full notice period in a different role.
Australia Employment and HR
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Let's face it, for many of us who manage people, dealing with post-employment restrictions can sometimes feel like dabbling in the Dark Arts.

Typically, your organisation will have a suite of post-employment restrictions that sit within your employment contracts. Sometimes they're tailored for the role, but more often they're not. When they're offered to your new hires they're rarely discussed or questioned. When they are questioned, it's common for you to respond with something about them being part of the organisation's "standard terms". Sometimes, but rarely, the new hire will negotiate specific changes with you.

When it comes to an employee exiting, organisations tend to do different things. For some, a "don't ask, don't tell" approach is taken. For others, a pro-forma reminder letter is sent in the hope it magically infuses the departing employee with a compliance mindset.

When the organisation discovers the person is (or is likely to be) acting in breach of their post-employment restrictions, there's often a heated scramble to give effect to the business' direction to "stop them". At this point, it's common to be faced with a mountain of legal and commercial considerations:

  • Is the post-employment restriction appropriately drafted, and no wider than reasonably necessary to protect our legitimate business interests?
  • Are we genuinely seeking to protect a legitimate business interest, or are we just trying to stop competition?
  • What damage is (really) likely to occur if the person is not stopped?
  • What's the real cost / benefit analysis around attempting to enforce vs not?
  • How long have we known, how quickly have we moved, and what have we done?
  • Is the business willing to become engaged in litigation against its competitor, and are we coming to the table with clean hands?
  • Will the business give the required "undertaking as to damages" for an application for an interim injunction to be made?
  • Will the business devote significant attention, time, money and people resources to provide the evidence necessary to support an application for an interim injunction, and to then see through a process of litigation that will continue long after the heat subsides?
  • Are we likely need evidence from our customers (for example, where solicitation is occurring)?

Against this background of uncertainty and difficult decisions, when organisations learn that a resigning employee intends to go to a competitor, it's surprisingly common for most to immediately "walk" the employee, end the employment with a payment in lieu of notice, send them a letter demanding undertakings, and hope they'll comply. Why do we do this? What do we achieve?

There's likely to be a number of responses when you're asked the "why" question, but I'd suggest the decision is often driven by the understandable (but misplaced) fear of now having your competitor's future employee within your organisation. When we stop and think about the "what" question, it doesn't take long to realise that one of the things we achieved was to put the now former employee in a position where they can take the risk, commence employment with the competitor, and put the timing and decision heat back on to us.

While there will always be exceptions, surely a more commercially astute decision will involve:

  • Requiring your (still) employee to remain in employment throughout the full notice period. You're going to have to pay them either way, so why not get the benefit of the clear and enforceable protection that comes from the person remaining your employee.
  • If you're really concerned about them having any access to your systems, and having any form of involvement with your business during their notice period, you can usually put them on gardening leave. In doing so, at least you'll have a high degree of certainty around what the employee is, and isn't, doing during the notice period.
  • For those who have well-drafted employment contracts, this is the time to consider using those provisions which give you the right to do things such as:
    • alter the employee's duties, including to remove those that might continue to expose the employee to those aspects of your business which are the source of your concern (e.g. confidential information, important client relationships, tenders, supplier negotiations etc);
    • require the employee to perform different duties;
    • move the employee to a different role; and
    • appoint an alternate employee into the role.

While you might still be left with many of the same legal and commercial considerations relating to the potential enforcement of your post-employment restrictions, by actively managing a departing employee during their notice period, you're at very least:

  • creating the opportunity to take real steps to begin protecting your business;
  • using the time to begin securing important relationships; and
  • giving yourself some space to make informed decisions about the post-employment restrictions,

while ensuring that the departing employee is sitting on the bench.

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