Protect Your Business

Your greatest competitors are often the vendor of your business or your former employees

We are often asked to give advice on both the sale of businesses and on contracts of employment. In our advice we draw our client’s attention to how the value of their business can be severely damaged by among other things:

• The person from whom they bought the business, who if there is no restraint, simply opens up nearby and competes directly for the customers of your business.
• Employees who can, if there is no restraint, simply stop working for you and commence business in competition. Even after you have spent considerable time and effort in training them. As well as, entrusting all of the information about your business to them.

It is important to protect your business against such competition by including suitable clauses in any applicable agreements?  Especially, as it is almost impossible to require such clauses to be included in agreements after they have been finalised. 

In the case of employees, if the employee has worked for you for some time before the subject is raised, it is unlikely you will then be able to implement the kind of terms that you need.

We typically advise that:

• There is no standard "one size fits all" clause;
• Every case is different and clauses must be modelled to suit each particular situation
• The shorter the clause, the greater the risk that the clause will not be of much help.

In our experience “Standard Documents” if they include anything on the subject include just a few short line provisions. We point that out to clients and even show them the type of clause that it refers to and at the same time show the client what is known as a “cascading clause” which is the recommended way to approach the matter. Unfortunately the vast majority choose nothing or at best a short form clause. They feel that a cascading clause will be found to be too challenging by the vendor or the employee. 

Unfortunately, we live in an age where both businesspeople and employees may look to make money out of the intellectual property or goodwill of others. Even where they have sold the business involved or are still employed by that business. 

The need to protect your goodwill and intellectual property, including customer details, is of great importance. Failure to protect these items can cause long lasting, if not permanent damage to one’s business. The High Court recently had the opportunity of considering this subject. The effect of its decision endorsed absolutely the approach we have taken with our clients for many decades.

Even if you have not included suitable terms in existing agreements, it will be worth discussing your position with ourselves. For two reasons:  

• It may well be possible to improve your current position to some extent. 
• You should be well prepared for the next time you need to implement protection for your business in the above circumstances.

 If the above has any relevance to your affairs, please do not hesitate to call us.