Moving the goalposts

20-07-2005

A warning note to recruiters over employee contracts and restraint of trade. Who would have thought football could have drastic consequences for the recruitment industry? But, believe it or not, the Ashley Cole affair could see recruiters wondering if their employee contracts are worth the paper they�re written on.

Arsenal defender Cole is to appeal a �100,000 fine for negotiating a transfer to Chelsea Football Club while under contract. Premier League rules forbid contracted players approaching other clubs until the final weeks of their contract � which is effectively a restrictive covenant.

Cole will argue this amounts to an unfair restraint of trade. If the court agrees, this could put a big question mark over restrictive covenants generally, which is likely to hit the recruitment trade hard given employee poaching is rife.

Such clauses may bar former staff from moving to competitors, contacting clients or setting up in competition. The general legal principle is that such clauses are only enforceable in so far as they are reasonable.

The principles were laid down in 1991 in a case between a national secretarial recruitment agency and two former employees.

The agency sued the former employees for setting up their own business in the City of London, despite a clause in their employment contracts barring them from setting up a business within 1.2 miles of the premises should they leave, effectively banning them from the City of London.

The court judged this clause to be unenforceable. The ruling stated that a suitably drafted covenant, precluding the defendants from soliciting or dealing with ex-clients for a reasonable time � say 12 months � would have been adequate for the firm�s protection, but the one in question was too restrictive.

In the recruitment business, staff turnover is notoriously high. Employees leave, taking their �little black books� with them. So how can recruiters use restrictive covenants to legitimately protect their interests in the light of this?

The key is to ensure that clauses are reasonable. Think about what aspects of your agency�s operations genuinely need protecting, and keep clauses proportionate to that end goal.

The more limited and specific the covenant, the more likely it will be to stand up in court.

CONTRIBUTOR: Helen Badger, employment law specialist, Browne Jacobson

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