Protecting your business with tight contracts

Hairdressing may be a people business, but salons nevertheless have the same need as other businesses to protect themselves from errant staff. Whether it’s an employee leaving to compete by setting up a rival salon or an abuse of confidential information, serious damage can be inflicted. In an employment relationship, employees have a duty not to divulge their employer’s confidential information and are subject to an implied duty not to disclose their former employer’s trade secrets after their employment terminates. However, the vast majority of employers ensure clauses are inserted in their employees’ contracts that impose this as an express obligation that endures after the employment relationship ends. Such express clauses are often widely drafted to ensure the employer has greater protection than would otherwise be implied in law. What constitutes “confidential information” is often widely defined in the contract of employment, but generally includes any information given in confidence, whether formally or informally. In a salon context, this could include client lists and contact details, supplier arrangements and prices and colleague contact details and remuneration. However, the precise wording of the clause imposing a duty of confidentiality that endures post-termination can often be crucial. Contracts should include a post-termination confidentiality obligation that protects against the disclosure or use of any confidential information belonging to it, regardless of how or when this was acquired. How else can a business protect itself? Rather than simply focusing on confidential information, there are other ways in which a salon can protect itself from the harm that former employees may do to it. Garden leave One example is to ensure that contracts of employment contain what is known as a “garden leave” clause. This clause will give the salon the power to require the employee to stay away from the business during all or part of their notice period. While the employee would continue to be paid his/her normal salary during this time, the benefit to the salon is that the employee would remain bound by all the terms of his/her employment contract, including any implied or express duties to act in their employer’s best interests (including not to divulge confidential information). Salons could use garden leave to stop an employee leaving the business immediately to work for a competitor, which would give it time to put in place whatever protections it may need to minimise the damage caused by the employee’s departure. Restrictive covenants It is also possible to include clauses in the contract of employment that restrict the activities of an employee even after they leave the business. These types of clauses are known as “restrictive covenants”. Such clauses are often the subject of litigation given their restrictive nature, and the courts will only deem them to be enforceable when they go no further than necessary to protect a legitimate business interest of the former employer. A common restrictive covenant is a “non-solicitation clause”. This is designed to prevent former employees from poaching (or soliciting) the business’ s clients or employees. For example, such a clause might state that the former employee is not allowed to employ any of their former colleagues (or cause them to be employed in any other salon) for a particular period after termination. Similarly, such a clause might also state that the former employee is not allowed to approach any of the salon’s customers or clients with a view to acquiring their custom. Another example of a restrictive covenant is a “non-dealing clause”. This type of clause seeks to prevent former employees from working with any of the salon’s clients or suppliers. The aim of this clause is to prevent the former employee from taking clients away from the salon and also to prevent them from disrupting the business by, for example, causing suppliers to no longer supply the business. A particularly restrictive clause is a “non-compete clause”, which aims to prevent the former employee from working for any competitor (or starting up their own competing salon) altogether. Restrictive covenants will only be enforceable if they are no more restrictive than is necessary. This means that the courts will give careful consideration to a number of factors, including the period of time the clause is seeking to protect. For example, often clauses will seek to restrict a former employee for a period of around six to 12 months after they leave their former employer, but the court will consider whether the restricted period is really justifiable. Similarly, the courts will also consider the geographical area the business is trying to protect. For example, a salon that is based exclusively in one town may not be able to justify trying to prevent a former employee from providing similar services for another salon on county-wide basis. Generally speaking, the more senior the employee and the more important they are to the business, the more likely it is that restrictive protection will be enforceable. However, it is vital that salons tailor any restrictions they have in place to their different kinds of employees, since a restriction that is enforceable for one type or level of employee may not be enforceable for another. Likewise, it is important that salons do not try to push their luck and include greater restrictions than they can justify, since to do so may render the entire restriction unenforceable.