HowardKennedyFsi: Is your business investment-ready?

Posted by admin at 15:51 on 13 Feb 2017

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A high percentage of business start-ups fail in the first year, and a significant percentage never create any return for their investors. There are many reasons for that but building a loyal team and a customer base are usually crucial elements of success and something which new businesses invest much time and resource in.

How can you protect those assets? Intellectual property rights may provide some but not all the protection you need. Using HR/employment tools will be an essential weapon in protecting your business from your staff walking out and taking your valuable assets with them.

First, and perhaps obviously, if you motivate and are able to retain employees, this will reduce the risk of competition. Competitive financial packages are important, as are ensuring that your employees are informed and feel empowered, are managed well and trained and developed and that good performance is recognised and rewarded.

The way in which you organise your business can also be important. You need to avoid client or information hogging and monitor information coming into and out of the business (for which you will need appropriate policies): both can reduce the potential damage caused when an employee leaves. Beware of allowing employees to build up exclusive banks of information which they may attempt to take with them and exploit for their own use.

You can do much to protect your business by having detailed and up-to-date employment contracts for all staff with appropriate terms for business protection. These will include obligations during employment relating to exclusive service, confidential information, appropriate handling/return of documents and IP rights. For key personnel you might go further and require them to notify you if they are approach by prospective employers and impose a duty to report anyone's wrongdoing which may damage the business.

When employees do leave, the length of the notice period will be important and, for many employees, it can be useful to have the right to put them on garden leave to give you an opportunity to shore up your business whilst they are unable to compete.

It is a commonly held misconception that post-termination restrictive covenants are never enforceable and are not worth the paper they are written on. In fact, valid restrictive covenants can be one of the best means of protecting your business. These might include restrictions on poaching or dealing with clients/customers, on poaching staff or suppliers and a term preventing an ex-employee from competing. As they are in restraint of trade, the courts will not uphold them unless they are reasonable and necessary to protect your business interests. Careful drafting is crucial. And you should make sure that they are up to date and relevant: think about them with each new appointment, promotion or role change.

If you suspect an employee of foul play, you will need to take advice and act quickly but your business will be much better served with the right policies and employment contracts in place.

If they are not in place when you start talking to investors, a condition of getting the investment may be that your key staff sign up to appropriate contractual terms. If you get them signed up for each new role, you may avoid having to pay extra consideration to persuade them to sign up later.

For information on any of the content covered in the article above, please contact Jane Amphlett, an Employment Partner at HowardKennedyFsi.