Restrictive Covenants

[dogz]

After advice from anyone who has been in a similar situation to myself

I've been with a smallish consulting business c250 heads for around 5 years. 3 years ago the business went through a PE funding round and I ended up with sweet equity which should the business grow, then I'd get a share of the sales proceeds. My equity stake is a low class of share which currently has 0 value, no voting rights and is a tiny stake in the overall size of the company. Whilst I am a director of the company, I am not involved in any board or strategic decisions unless they are filtered down

The economic backdrop coupled with some poor board decisions has meant the business has shrunk to <40% of its size due to redundancy rounds etc. I've started looking at other jobs as the future is uncertain

The main issue I have is that the Investment Agreement which was signed to get the sweet equity means that I have a non-compete clause of not working for business which is the same or similar type and would be in competition.

Given what I do, this will mean it is going to be difficult for me to obtain employment once I resign. Its effectively a handcuff or really a noose given what is going on

The main questions I have are:

1) Do I need to seek advice from an employment solicitor or a commercial law one given the covenant is in the investment agreement
2) How enforceable would the covenant be given its is very wide

Just need some help (paid advice) on unravelling this so I can move on

[dogz]

Just to clarify, Its a 12 months restrictive covenant on termination of employment. There are the other usual suspects in there such as non-poaching of clients and of staff

Notice is 3 months

I've found a decent employment solicitor to look at this but wondering if its more contract than employment law

[dogz]

stuthe said:

http://www.cambridgeemploymentlaw.com/oliver-pryke...

Highly recommended.

You are correct, this is a Commercial contract you will have signed under legal representation (shareholder representative as part of PE), NOT employment Law. The wider the covenant, the less likely it is for them to be bothered to try and hold up if it went nuclear, but you need to get advice. ABS and Traction control are off here.

I'd imagine, that if sanity prevails, you'd be triggering a loss of any equity/shares you hold under current contract but it would be unlikely it would be worth their time enforcing your moving to another company and so they'd let you do it... BUT Restrictive Covenants have teeth, this isn't a mere non-compete.

To be clean on this you'd need to speak to current employer and seek release from the covenant to join other-co. When you join Other-co you'll almost certainly be signing a warranty (& indemnity) in that Employment Contract that will declare you are not under and covenants that would preclude you working for Other-co freely. You don't want to be lying on that..... & you really don't want to join a new-co and have legal proceedings against you and that company commence immediately on starting, that's a bad look and you'll likely not be in the role very long!

Now many don't do this properly and chance it, and most probably get away with it..... but you want to be able to sleep soundly at night. Get advice & act with care.

Good luck.

Edited by stuthe on Sunday 25th February 20:44

Thanks for the advice

On leaving, I'd be classed as a bad leaver and loose my share allocation. Whether I would get any of the cash back I paid to get those shares, I might but I've already written it off

I'd much rather sleep soundly at night and will play fairly in terms of not soliciting current or prospective clients (those being targeted or inflight), nor poaching their staff for the 12 month period. I will 100% up hold my end of the bargain in terms of not causing them a commercial loss knowingly

Potential employer knows there are restrictive covenants in place but not to the degree of not joining competition - I will obviously appraise them once I've got legal advice. I know I might have to bail on potential offer which will really grate on me!