UNDERSTANDING YOUR RECRUITMENT AGENCY’S RESTRICTIVE COVENANTS

Whether you own your own recruitment business or you’re a top-billing consultant for a successful agency, you should have a good understanding of your recruitment agency’s restrictive covenants.

REASONS WHY

As a recruitment business owner, you can use restrictive covenants as a form of protecting your business should any of your recruitment consultants decide to leave and set up shop on their own. If you do not have any restrictive covenants in place, this could lead to your staff taking your best clients and candidates with them and ultimately, becoming a direct competitor of your business.

With that said, if you’re a recruitment consultant who is looking to set up your own recruitment business you should be fully aware of your restrictive covenants before going it alone. Not considering these terms carefully can lead to you breaching your previous employment contract, putting you at risk of legal claims from the outset.

RESTRICTIONS FOUND IN RECRUITMENT AGENCY’S RESTRICTIVE COVENANTS

The Confidentiality Clause

These terms ensure the ex-employees cannot divulge company’s confidential information that they acquired when working at the recruitment business. This includes knowledge regarding your key business areas, candidates & clients details, pricing structures, contracts, your business strategy and even knowledge regarding the workforce.

Non-Solicitation Clause

These terms stop your ex-employees from approaching your company’s clients and candidates or even prospective clients and candidates after they leave your employment.

Non-Dealing Clause

These terms prevent your ex-employees from doing business with your company’s clients and candidates, even if your contacts take it upon themselves to approach your ex-employees to do business without your knowing. With both the Non-Solicitation Clause and this Non-Dealing Clause in place, this protects your business from ex-employees as well as disloyal clients and candidates from joining forces.

Non-Compete Clause

These terms stop your ex-employees from working with a competitor of your business or even setting up a business that is in direct competition of your offering.

Non-Poaching Clause

These terms prevent your ex-employees from poaching your staff to their new employment or business.

ARE THESE TERMS ENFORCEABLE?

This really depends on the type of situation your business sits and the levels of staff that have access to sensitive information about your business. The Court will also look at the date of the contract and the viability of the contract when the employee entered it.

In a typical recruitment business, your senior recruitment managers and directors of the business may have worked up through the ranks and should therefor have their restrictive covenants updated as they are promoted. Reasonability also plays a factor in updating these restrictive covenants and they may even be compared to other contract terms that have already been enforced in your sector. Things to consider when updating your restrictive covenants are scope, duration and location.

For example, enforcing restrictive covenants which prevents your employees from working with similar businesses in your industry within a 15-mile radius is far more reasonable than trying to enforce this and stopping your employees from working with similar business within the whole of the UK.

WHAT YOU CAN PROTECT USING YOUR RECRUITMENT AGENCY’S RESTRICTIVE COVENANTS

  • Client and candidate connections as well as prospects, this can even include lists generated through social media for example LinkedIn connections
  • Confidential information, these include business plans, client and candidate data lists, pricing structures, contract templates and even preferred suppliers
  • Dynamics of the workforce, details on staff and their current opportunities within the business

TYPICAL DURATION OF RESTRICTIVE COVENANTS

This really depends on the seniority of the employee as well as their access to sensitive information within your recruitment business. It’s common for them to be between 3-12 months, any longer than 12 months it will usually be deem unenforceable.

EXAMPLE

Mr Dill was employed by Iworkfor ltd as a junior recruitment consultant in 2000.

His original employment contract included a covenant preventing him from joining a competitor for a 12-month period after termination.

Mr Dill was then promoted in 2005 and signed a letter varying his job title, salary, and notice period. In 2012, Mr Dill resigned giving three months-notice.

Iworkfor ltd regarded Mr Dill’s new company as a competitor. They applied to the High Court for an injunction against Mr Dill to enforce the non-competition clause.

The High Court dismissed the company’s claim on the grounds that the 12-month non-competition clause was void and unenforceable at the time it had been entered into in 2000. Mr Dill had been a junior recruitment consultant at that time, with limited access to confidential information and minimal client contact.

When Mr Dill was promoted, the variation of his contract had not brought the non-competition covenant to life, even though he was at that time more senior. A fresh contract with a valid covenant should have been signed on promotion.

LESSONS LEARNED

If you are a recruitment business owner reading this and you do not have any restrictive covenants in place, or you haven’t updated them as you’ve promoted your staff, we’d recommend you review these immediately.

On the other hand, if you’re a recruiter considering setting up your own recruitment business but you are worried about the terms of your current restrictive covenants, you can always consult with a lawyer to see if these are still enforceable.

In many cases there are loopholes due to all kinds of reasons, so we’d highly recommend that you don’t write off your dream of being your own boss too early.

If you would like further advice on starting your own recruitment business, TBOS are always happy to help. Please feel free to call our office today to discuss your requirements in more detail.

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