In this article I look at preventing the dissipation of your human capital (i.e. how to minimise the threat of your key staff jumping ship). “I don’t do fashion. I am fashion,” said Coco Chanel. A fashion label or agency is only as good as its employees, and Coco Chanel was only as good as the team behind her – from designers to business developers and account managers. But what if all these skilled employees leave to form a rival business? What if you are working with another company who attract all of your staff to join them? These are serious risks for any business.
Keeping your staff incentivised, happy and motivated is likely to be the best way to maintain their loyalty and to build a long working relationship with them. Nevertheless, in this brave new world of short termism and ‘worker poaching’, employers can build in measures to reduce the risk of key staff leaving, and if they do leave, minimising the threat of them ending up competing with you (using your goodwill and knowhow).
You can mitigate these risks by including contractual provisions in your agreements with employees, clients and suppliers or by taking indirect measures such as gardening leave and ‘golden handcuffs’. The key thing to remember is that having clearly worded agreements with employees and other companies, which are proportional to their aim, will act as a deterrent to any threatening behaviour. But in the event that a dispute arises, it’s solid written evidence that you should rely on.
Therefore I typically advise clients to put in place non-solicit, non-compete and confidentiality provisions in all their key agreements, both with employment and supplier agreements. Here we look at some considerations to take into account when including those provisions.
Agreements should include provisions so that:
1. Ex-employees cannot solicit staff that remain at the company.
2. Key staff should not be able to set up a competitor business. This needs to be specific (you couldn’t just say ‘a fashion business’), for a limited period of time after employment (depending on the seniority of the employee) and restricted to a particular location.
3. Ex-employees should not be able to actively solicit current clients of the company.
4. All client lists, databases and trade secrets are covered by your confidentiality provisions as you can then use the threat of breach of confidentiality if you believe an ex-employee is using your company’s assets against you.
5. You specify who owns the IP rights – although employers usually own the IP automatically from work that is created by an employee in the course of their employment.
Agreements with Clients and Suppliers
Agreements with clients and suppliers should have non-solicit and non-poaching of staff provisions. Two things to consider here are:
1. Even if a provision is in place sometimes it may be better to maintain an existing relationship with a client or supplier who has poached a member of your staff than to enforce your legal right (after all your ex-employee could now be an ally within your client or supplier business).
2. Contractual provisions are only relevant with parties that you have business relationships with, so you can’t stop another company taking staff if they are unrelated to you.
Gardening leave and ‘golden handcuffs’ (offering a high level of benefits to keep key staff) are indirect ways of protecting your business and keeping employees. Often they can be more effective than contractual clauses.
Long (but reasonable) notice periods and gardening leave will give your business a period of time to strengthen and enforce your client relationships if the employee who is leaving worked on a particular valuable client; and ‘golden handcuffs’ will prevent your employees from leaving in the first place.
For more information on Industry member, Tahir visit his personal partner page on the Sheridans website. To contact him directly, visit The Industry Directory, email email@example.com or telephone 020 7079 0103.