Employment contract prevents hiring individuals from same firm after one leaves

CharlieRabbit

I am aware of employment contracts that include a clause preventing managers from hiring individuals from the same firm after they leave.

Say the clause is 12 months. A manager leaves a firm and sets up his own company providing the same products or services. He advertises vacancies in his company and an old colleague applies for the job.

The old colleague gets the job and his firm threaten legal proceedings against the new company.

Any idea what the outcome might be? I've heard that these clauses have not got a sound legal basis.

Sangre

Is there a general non-compete clause in place or only one referring to hiring ex-employees?

Duffman

Non-compete clauses are usually unenforceable on the grounds of illegality as they are considered to be in restraint of trade.

There would have to be a good reason for the existence of the clause, generally the protection of specific business interests. Even then the restriction in question must be reasonable and go no further than necessary to protect the business interests identified.

It probably wouldn't be good enough to simply prohibit the hiring of ex-employees. The party seeking to rely on the clause would have to be able to show that the employees pose a specific threat to the business, say knowledge of valuable trade secrets.

The courts are fairly reluctant to uphold these clauses and where they do the cases in question have some distinguishing facts.

Victor

Such clauses would be common with middle and senior managers where personal knowledge of the client or their business is important. They are also common in personal services - hairdressing comes to mind. However, limits are usually in existence, whether temporal or geographical. Some organisations will have things like golden handcuffs or gardening leave to discourage poaching of senior staff by rivals.

One way around all of this is for the individuals to work for other organisations, e.g. X (manager) quits and goes to work for Y and then encourages Z (a fellow manager or key employee) to join them. X then buys the business off Y.

Carawaystick

from my experience, if the new copmany advertises and an employee from the old company applies there is no case to answer. if the new company tries to poach employees, then hassle may ensue.