Restrictive Covenants – How These Can Affect You Starting Your Own Recruitment Agency

Many recruiters who are looking to start their own recruitment agency will be planning this while still working for their old agency. An important part of the planning process, along with organising providers and suppliers, is to consider if there are any legal restrictions which prevent you from creating an agency of your own.

Often your previous employer will have clauses within their staff contract to ensure that they protect their own agency interests should you decide to leave and start your own agency. These types of clauses are called restrictive covenants and need to be considered at your planning stage to ensure that you do not breach them and risk a legal claim against you from the outset.

Below is a list of some of the common restrictive covenants that recruitment agencies will use in their staff contracts and that you should be aware of:-

    One of the main assets of any recruitment agency is the clients and candidates on their database and the PSL agreements in place. Recruitment agencies will often protect this asset by using restrictive covenants that prevent ex-employees from contacting any clients and candidates that the business has worked with for a set period of time (normally 6 months). This type of covenant will also prevent you from contacting any clients and candidates that you have made relationships with from your new Agency so you will need to ensure that you have alternative clients and candidates to deal with during this time.
    Some agencies will use restrictive covenants to prevent their ex-employees from registering an agency which is in direct competition with theirs, usually for a period of 3 months following their departure. This will mean the ex-employee cannot form their new agency until after this time period has lapsed. As Companies House records are in the public domain and names of directors are freely available, you could easily be caught in breach of the restrictive covenant if you register your agency prior to the expiry of this clause.
    With social media channels such as LinkedIn holding such large volumes of client and candidate data it is understandable that agencies will want to protect their property. Many restrictive covenants ensure that ex-employees no longer have access to these channels upon resignation to ensure the data is not used by another agency.
    When starting your new agency you may have plans to take some of your work colleagues along as you have built up a relationship and trust that they will perform for you. However most agencies have a restrictive covenant which ensures that this is not possible for a period of time (normally 6 months). Reliable recruiters are great assets to agencies and this is why this type of restrictive covenant is increasingly common.

One thing to note with any restrictive covenant is that it needs to be fair and cannot restrict you for an unreasonable length of time. If the covenant is overly restrictive your employer may find that it is unenforceable.

Also any employer needs to ensure that they continue to follow the letter of their staff contract when an employee leaves to ensure that the restrictive covenants are still enforceable. Any breach of contract by your employer could render their restrictive covenant null and void. This is why it is so important for your employer to pay your final salary correctly for example.

TBOS has helped many new agencies start their journey and we often offer our help and advice to new directors regarding staying within their restrictive covenants to avoid any legal action from their previous employers. TBOS can also advise its agencies on how they can protect their own agency by having legal and enforceable restrictive covenants in their staff contracts.

For more information on how TBOS can help you start your own recruitment agency please contact our office on 0845 881 1112.