How to safeguard business assets, including employees, clients and contracts
Who is the most valuable person in your business, and how would you feel if they left to work for your closest competitor? What would you do if a rival business poached a key contract?
As a business leader, your clients, relationships, and confidential business secrets are your crown jewels. You must handle them with the utmost care or risk your business’s success. If you don’t you might end up gifting your hard work and talent to your nearest competitor.
Some key steps to protect these valuable assets
1. Use restrictive covenants
Restrictive covenants are designed to protect businesses by preventing key personnel from taking their valuable expertise and relationships to rival organisations.
Restrictive covenants can be drafted into a wide range of agreements such as employment contracts and partnership, shareholder and consultancy agreements. They are also common in franchise, agency and distributor agreements and can be included in agreements between businesses and their suppliers or service providers.
A well drafted restrictive covenant will have a specific duration and/or geographical reach. You can use them to safeguard sensitive business information, trade secrets, and proprietary knowledge from being disclosed or used by competitors. They can also prevent the soliciting or poaching of clients and act as a deterrence for joining or starting competing businesses.
‘Therefore, restrictive covenants safeguard business knowledge and the time and resources invested in training and development.’
2. Make it enforceable
Legal advice on drafting restrictive covenants is crucial because if a business is too greedy and a restrictive covenant is too obstructive it will become a “paper tiger” as it will be unenforceable. Restrictive covenants can, for example, be deemed unenforceable if their geographic scope is overly broad, their duration is excessively long, or their scope of activity is too expansive. It is better to have a tighter clause that the courts will enforce, than a wider clause that may only bring false comfort.
3. Brand protection
Enhance your brand through strategic marketing, consistent messaging, and robust intellectual property protection. A well-protected brand fosters pride and loyalty among employees, reducing their likelihood of leaving for competitors. Additionally, strong brands build substantial customer loyalty, making it challenging for competitors to break into the market. It can also increase the appeal of your business to suppliers.
4. Monitoring
Where a restrictive covenant is breached, you will need to prove the breach and prove your loss. Build strong, personal relationships with clients and stay in regular contact with key clients through meetings, calls and updates to maintain a strong connection and increase the likelihood of them informing and cooperating with you if they are approached. Consider having a clear internal reporting process for employees if they are aware of any potential breaches or concerns.
Keep an eye on social media posts: social media can be used to identify changes in key personnel or business activity that might be a breach. LinkedIn might identify employment changes or Facebook, X or Instagram might reveal new ventures by former employees. Look at data and consider if there are any anomalies that might indicate a potential breach – perhaps a drop in business from a particular client or unusual activity in a restricted geographic area.
Undertake periodic audits to review compliance with restrictive covenants. When employees leave conduct exit interviews so that they can be reminded of any restrictive covenants.
5. Take action
Be prepared to negotiate agreements with departing employees and competitors but avoid being overly demanding. Address the issue, secure your interests, and move forward. If there is a breach take legal action quickly and decisively. The courts will readily enforce a well drafted clause by way of an injunction. The courts are also willing to award damages and force parties to account for their profits.
6. Third party liability
If a competitor intentionally encourages or persuades someone, such as an employee or supplier, to breach their agreement with you then this may amount to inducement or procurement of a breach of contract. Businesses who know about the contract and covenants or should have been aware of them from their experience, cannot simply turn a blind eye to the breach. These third parties can be subject to injunctive relief and a separate claim for damages.
7. Publicity
Finally, don’t be afraid to publicise the steps you have taken to protect your business and its confidential information to both your remaining employees and your competitors. You want them to know that you will take all necessary steps to protect your important business assets when there has been a breach.
Speak to an expert
For more information or to discuss your business’s circumstances, contact 0800 652 8025 or a member of our commercial litigation team.
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