In this article we look at some factors to be considered when recruiting a senior executive and in our next issue we will look at those relevant to terminating their employment.
The executive with existing covenants
Many senior executives will be subject to existing restrictive covenants with a previous employer in a contract of employment or other document such as a shareholders’ agreement. This will be an immediate concern if the executive is subject to a non compete clause preventing him from working for you for some months. There may be other clauses such as prohibiting the executive from soliciting or dealing with clients with whom they dealt in the previous job which if complied with could affect their role with you.
The existence of such clauses puts both you and the executive at risk of threatened/actual litigation by the previous employer seeking to enforce them (particularly if the executive is part of a team move to your business). Therefore it is a good idea to understand what the employee will/not be able to do, before an offer is made, which may require your obtaining legal advice on their post termination obligations. After all the restrictive covenants may not be legally enforceable at all or may not apply to the work the executive will be doing for you. However, particularly if the covenants are likely to be enforceable and the executive likely to be in breach in working for you, then a decision will have to be made about whether to make an offer and then either do nothing (the courts take a dim view of defendants who actively mislead or are less than full and frank about their activities or claim ignorance) or for the previous employer to be notified. This may be for example when the executive is giving notice or if asked by the previous employer, so as to flush out their likely approach; and the executive with such covenants will probably have a contractual obligation to disclose potential breaches of them to their employer.
Separate offer letters and service contracts
The risk of sending out a separate offer letter is a subsequent inconsistency between it and the service contract. If you do send out an offer letter then usually the shorter the better and include in it any conditions such as satisfactory references and proof of a right to work in the UK. It is better practice to send out both documents together.
The importance of a service contract signed by the executive
You should obtain a signed service contract because otherwise you are at risk of dispute over its terms and even whether post termination obligations are enforceable at all. Therefore your offer letter may require the return of a signed service contract by a specified time failing which your offer will be withdrawn.
The executive who pulls out before the start date
If the executive having accepted your offer promptly changes their mind without giving you proper notice, this will generally be a breach of contract, even if prior to the intended start date. In these circumstances you will be left with the difficult task of proving that your business has suffered a direct loss as a result of the breach and such claims are very rare. If without the executive you are likely to lose a contract or otherwise there will be a financial loss to the business consider including a “no-show” clause, obliging the executive to pay liquidated damages to compensate for the loss of profit if they fail to start work for you. Until recently such clauses were considered to be unlawful penalties but such a clause was accepted in the case of Tullett.
For further information or for any queries you may have regarding this topic please contact Francesca Wild, Senior Associate in our Employment team based in our Woking office. Either by email [email protected] or by phone 01483 215 366.
Although correct at the time of publication, the contents of this newsletter/blog are intended for general information purposes only and shall not be deemed to be, or constitute, legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article. Please contact us for the latest legal position.