You can’t hang on to every employee forever; inevitably some of your top talent is going to leave. What are the risks this poses to an organization, and how can you safeguard against them?
Inevitably, talent is going to leave. Whether they are departing to start their own organization, embark on another chapter in their life or join a competitor, all employers will feel the sting of losing their heavy hitters at some point.
At a recent conference, law firm Holding Redlich outlined the potential damages to an organization when an executive moves on, as well as how they can minimize risk.
Stephen Trew, partner at Holding Redlich, said organizations risk the loss of intellectual property, “know-how”, strategies and sensitive information, as well as contacts and goodwill when an employee leaves. It may also damage staff morale and result in other workers leaving.
“Once you get one or two leaving the fact is employees [think]… ‘maybe I’m missing out on something too if others are leaving’,” he said.
All of this can also result in a competitor gaining an advantage. Departing executives who wish to stay in the field will invariably either start a competitive organization or join one, bringing with them the assets they have accumulated from their former employer.
A key tool used to prevent this is a restraint of trade. This is a contractual term which limits the commercial activities of an individual. This can be during employment, but predominantly applies afterwards. These often appear in employment contracts, but may also appear in other agreements such as shares or separate agreements regarding confidentiality.
On Page Two: Key takeaways for HR
#pb#
Key HR Takeaways
In order to help ground these restraints of trade and otherwise develop procedures to limit the risks of departing employees, organizations should take a number of steps:
Conduct a risk assessment. The risks each organization faces will vary – even more so when one considers the different hierarchical levels of an organization. Employers must identify where and how the risks exist within the business, then develop strategies, policies and systems to address these risks.
Develop contractual responses. A number of clauses and obligations may apply depending on your situation. This includes gardening leave clauses, fixed term and liquidated damages clauses, restraints of trade clauses, as well as confidential information and intellectual property clauses. It is important to understand the purposes and definitions of each of these clauses, and to use them appropriately.
It is important for contracts to be up-to-date, as well. As an employer moves throughout the organization, their old contract may not reflect the current climate, function of the laws, or even the nature of the employment.
Consider remuneration strategies. This may feed into reasons for why employees may leave organizations. Employers should consider discretionary or deferred payments, as well as retention bonuses. Other options may also be suitable depending on the nature of the organization. Employers must analyze how remuneration can support retention.
Develop policies and procedures. Organizations may consider limiting the areas in which information can be stored, and whether it can be transmitted (such as by email) by staff. This can help prevent defecting employees from taking information and property with them. However, this can also cripple an organization’s ability to function in the digital world, and so these policies must not become too restrictive. Confidentiality and resignation procedures need to also be considered, and are perhaps more adequate at preventing leaks as they do not hamper the functions of the organization. Although the former may not stop employees from physically leaking information, it may deter them as they have contractually agreed not to.
Consider other scenarios. Contractors may also pose a risk to the organization, as may group structures, corporate transactions and joint ventures. These are functions and elements that will effect different organizations in varying degrees and need to be considered.
At a recent conference, law firm Holding Redlich outlined the potential damages to an organization when an executive moves on, as well as how they can minimize risk.
Stephen Trew, partner at Holding Redlich, said organizations risk the loss of intellectual property, “know-how”, strategies and sensitive information, as well as contacts and goodwill when an employee leaves. It may also damage staff morale and result in other workers leaving.
“Once you get one or two leaving the fact is employees [think]… ‘maybe I’m missing out on something too if others are leaving’,” he said.
All of this can also result in a competitor gaining an advantage. Departing executives who wish to stay in the field will invariably either start a competitive organization or join one, bringing with them the assets they have accumulated from their former employer.
A key tool used to prevent this is a restraint of trade. This is a contractual term which limits the commercial activities of an individual. This can be during employment, but predominantly applies afterwards. These often appear in employment contracts, but may also appear in other agreements such as shares or separate agreements regarding confidentiality.
On Page Two: Key takeaways for HR
#pb#
Key HR Takeaways
In order to help ground these restraints of trade and otherwise develop procedures to limit the risks of departing employees, organizations should take a number of steps:
Conduct a risk assessment. The risks each organization faces will vary – even more so when one considers the different hierarchical levels of an organization. Employers must identify where and how the risks exist within the business, then develop strategies, policies and systems to address these risks.
Develop contractual responses. A number of clauses and obligations may apply depending on your situation. This includes gardening leave clauses, fixed term and liquidated damages clauses, restraints of trade clauses, as well as confidential information and intellectual property clauses. It is important to understand the purposes and definitions of each of these clauses, and to use them appropriately.
It is important for contracts to be up-to-date, as well. As an employer moves throughout the organization, their old contract may not reflect the current climate, function of the laws, or even the nature of the employment.
Consider remuneration strategies. This may feed into reasons for why employees may leave organizations. Employers should consider discretionary or deferred payments, as well as retention bonuses. Other options may also be suitable depending on the nature of the organization. Employers must analyze how remuneration can support retention.
Develop policies and procedures. Organizations may consider limiting the areas in which information can be stored, and whether it can be transmitted (such as by email) by staff. This can help prevent defecting employees from taking information and property with them. However, this can also cripple an organization’s ability to function in the digital world, and so these policies must not become too restrictive. Confidentiality and resignation procedures need to also be considered, and are perhaps more adequate at preventing leaks as they do not hamper the functions of the organization. Although the former may not stop employees from physically leaking information, it may deter them as they have contractually agreed not to.
Consider other scenarios. Contractors may also pose a risk to the organization, as may group structures, corporate transactions and joint ventures. These are functions and elements that will effect different organizations in varying degrees and need to be considered.