A common dilemma facing business owners today is what to do when an employee leaves and sets up a competing business nearby.  In some cases the employee has been with the business many years and built up significant relationships with clients of the business and there is a real risk that the clients will transfer their business to the new competitor. 

 In order to protect against that risk, employers must have a suitably worded restraint of trade or non-solicitation clause in the Employment Agreement.  Without such a clause there is nothing in law preventing employees from setting up next door and “stealing” clients.  In doing so, however, the ex-employee is not entitled to use confidential information gained during their employment to advance their own interests.  That information can include client lists and information concerning client affairs as well as trade secrets. 

Restraint of trade provisions are themselves unenforceable unless a Court decides the particular clause is reasonable.  So if, for example, a clause seeks to prevent an employee from being involved in a competing business for a period of two years in the whole of New Zealand, it is likely to be struck down as too wide.  The Court might substitute a narrower clause such as “six months in the greater Christchurch area” as being reasonable.  Just what is reasonable depends on the circumstances, the type of employment and the interests that the employer is seeking to protect.

Non-solicitation clauses do not have to be limited in time or geographic location.  These are clauses which prohibit the employee from contacting clients of the employer and actively encouraging the client to transfer their business to the new competitor.  These clauses are much more likely to be upheld as a breach is likely to imply illicit use of the relationships formed by the employee while working for the employer’s business.

If you suspect that an employee is trading in breach of either of these types of provision, then evidence of the conduct must be obtained. This can include evidence from clients who have been contacted, advertising material, mail drops and such like.  The Court (or Employment Relations Authority) can grant an injunction preventing the employee from continuing to trade in breach of the clause.  Unless the clauses are in a signed written Agreement, however, you will be wasting your time.  Accordingly, ensure from the outset that your Employment Agreements have the right provisions for the type of employment and protection that you need.

Ok, so you have spent months listening to commentators give their perspective on economic conditions and you are still somewhat in the dark as to what the future holds. The exchange rate is up and down like a ride at Disneyworld, fuel prices make mowing the lawn an expense exercise and you have given up eating cheese, not because your dietician told you it was contributing to your fatty liver, but because it’s just bloody expensive.

The above example is not exaggerated. This is happening around the country as we speak and will be repeated umpteen times again this year. However, the question is how to mitigate and manage this risk.

Recruiting Managers is an expensive exercise and every precaution should be taken to ensure a successful outcome.

1. The role of HR:
HR departments are under pressure to reduce expense on recruitment and so the first thing that happens is recruitment is undertaken in-house. While on the face of it there is nothing fundamentally wrong with this scenario it does depend on who in HR is responsible for the process. Don’t get me wrong, I love HR…I’m in the ‘HR Industry’ but a recent example of a HR Advisor with 3 months experience aged 23 responsible for recruiting and making the final recommendation on a Group Sales and Marketing Management for a large national company seemed to have quite a high level of risk attached to it. Outcome: Bad – person placed was exited after 4 months….and so was the HR Advisor. Fault cannot be assigned entirely HR. However, people need to recognise and understand their limitations.

2. Outsourcing Talent Acquisition:
Now at this point I could ramble on about why you ‘must’ outsource. However, this is not always the right course of action. Firstly, you need to find the right talent acquisition partner to work with. Once that is established, you need to agree on which parts of the recruitment process you want your partner to support you with. And finally, you need to hold them accountable for ensuring the final appointment is with an individual that can add value to your business. The recruitment industry is littered with inexperience and bad experiences so avoid getting caught in the bright lights of colourful brochures and really drill down into their experience and value they can deliver.

3. Build a Candidate Profile:
This is not just a Job Description. Go and sit in a darkened room and dream – think about what you want to achieve, what achieving it is going to require and then start building a picture of the person or persons you will need to achieve it. Don’t just think superficially – like ‘I want a sales person to be a hunter’. Think about how this person is going to have to work with you, management, the team and customers. What do you regard as exceptional performance, what will be deemed unacceptable performance, how would you like to manage the individual and how would you like them to respond. What should their ethics and values be, should they be experienced in certain things or do you value raw talent more. Why is education important and will it make a difference in this role. Once the ideal candidate profile and JD are established, interview against this.

4. Cross Reference the Interviews – use colleagues:
Any role that has cross functional responsibilities. ie. A sales person who is required to sell goods / services, generate revenue, lead a team, deliver goods on time, means they have a relationship across various internal functions – sales, finance, customer service, manufacturing. Seek feedback from management in those units as to what competencies an individual should have to be successful, from their perspective. A ranking system can be useful. ie. If one department will have more involvement with the ‘New Manager’ their influence over the decision may be given more weight.

5. Be Rigorous:
The recruitment process should be rigorous. Don’t do it alone. Either involve an external third party in some or all the process or have others internally support you. Always involve someone that has nothing to gain from the process. The recruitment process itself should be given serious consideration, especially when recruiting high value, high cost employees.

6. Hire Slow – Fire Fast:
The old adage applies. In a blind panic, knowing that figures are crucial, you may knee-jerk and think ‘what the hell, this person is near as dammit’. Don’t lose sight of the underlying principle you have adopted – make sure you get the right person, not second best. In a talent short market, the right person is not always just around the corner. That’s why workforce planning is crucial, especially for key roles in your business. Identifying talent should be a constant.

7. Hold Management Responsibility:
We frequently see people who have ‘signed-up’ to management roles but are not held accountable in achieving what they are required, and agreed, to deliver. Remember, there is a significant cost to your business in employing managers. Be suspicious of those that constantly blame others for poor performance of the division they are responsible for. Some management are experts at delegating blame.

Talent is a rare commodity, especially leadership talent. When recruiting Management remember;

- Give yourself time

- Ensure a rigorous process is adopted

- Involve a third party to question your thinking / decision

- Research the applicants background, experience and results extensively

-Post employment, manage performance closely against measurable KPi’s

If you are in the process of recruiting and would like to discuss in more detail, please call Steve, Craig or Viv at EQ Consultants.