Restrictive covenants in employment contracts: what this means for estate agents

As one of Yorkshire’s leading property firms, Ison Harrison Solicitors Ltd works with most, if not all, of the major estate agents across the region. As such we know that it is common place for staff to move between different estate agency firms throughout their careers, often taking loyal customers with them.

This article explores the following –

1) Common strategies to ‘work around’ restrictive covenants;

2) How to help protect your business from losing customers when a staff member leaves to a competitor.

Common strategies to ‘work around’ restrictive covenants

The idea behind restrictive covenants is that they protect a business from losing income, yet most businesses rely on generic restrictive covenants that fall short of the mark. This is especially true for estate agents who typically rely on the following clause (or similar) -

‘You [the Employee] will not for 6 months following the Termination of your employment be involved in any Capacity with a competitor within a 5 mile radius of your normal place of work.’

Traditionally, this type of restrictive covenant was useful as estate agency offices were typically based near to the geographical area of house sellers (‘Housing Stock’) that they served, thus protecting the business from losing custom to a rival.

However, with on-line services such as Rightmove, Purplebricks, Facebook and LinkedIn, estate agents do not need to be located near to the Housing Stock that makes up their client base and nor do customers that had previously received good service from an ex-employee, or built up a good relationship with them, need to scour local estate agency branches to locate former employees as this information is at everyone’s’ finger tips.

Ex-employees will have built-up a detailed knowledge of their former employers business, the Housing Stock (including its value and how quickly it is likely to sell) as well as relationships with house owners and landlords they had worked with in their prior employment.

To circumvent the type of restrictive covenants mentioned above, a new employer can simply locate the member of staff at a different branch for a six month period, or permanently, and if this is the only restrictive covenants that the former employer has then there is not much the former employer can do to prevent the rival business, and former employee, targeting its customers.

How to help protect your business from losing customers when a staff member leaves to a competitor

Whilst the enforceability, or otherwise, of a restrictive covenants very much depends on the circumstances of each case and the supporting evidence available, the starting point is to have the right restrictive covenants in place.

We advise our estate agency client to implement within their contracts of employment restrictive covenants that seek to prevent former employees from working on the Housing Stock that they have worked on within the 12 months prior to their employment ending. Not only does this help protect our estate agency clients from losing business to competitors, but also helps prevent ex-employees setting up a business themselves and targeting the Housing Stock that they previously work on for their former employer.

In a digital world, it is important that companies have the right restrictive covenants in place to protect their business. We offer our clients an insurance policy that covers the legal costs (which are often prohibitively expensive) for them to make a claim against a former employee (and potentially their new employer) that has breached a restrictive covenant that we have drafted.

Outsourced HR and employment law

Our team of employment law and HR experts offer a range of cost-effective monthly subscription services to ensure our clients have robust HR systems in place, appropriate restrictive covenants and insurance cover. Find out more about this Employment law & HR service here or arrange a free initial consultation by clicking here.