18 May 2022
Law at Work - May 2022 – 1 of 5 Insights
Fierce market competition, escalating customer service demands and a change in shopping habits since the start of the pandemic has meant that the need to best protect client relationships is a topical issue for many retailers.
Information, consumer goods and social media are all now readily at our fingertips. This has led to a new trend in the retail space, especially the luxury goods sector, in the rise of the digital personal service offering. It is now a common experience for those visiting luxury retail stores to share their contact details with a sales advisor who will inform them, often via text or WhatsApp, of any in-store on online offers or new trending items. This means that sales advisors have the contact details of customers at their fingertips which, in turn, leads to business interests and data protection concerns hanging in the balance.
This quick and easy selling method is likely to become standard practice for high-end retail. Employers recognise that sales will increase when a personal service is offered to those who are willing to spend large sums of money on luxury goods. In turn, employees know that there is commission to be earnt from such practices, but it does create challenges for employers who wish to protect client relationships. The more contact sales advisors have with customers, the stronger their business relationship becomes which increases the risk of brand loyalty being placed at jeopardy should that employee leave and join a competitor.
The use of post-termination restrictive covenants in employment contracts has long been a common tool in the UK to best protect business interests although the ability to enforce non-compete restrictions has often put employers off using them or, seeking to enforce them after the employment relationship has ended. Non-competition restrictions are notoriously difficult to enforce due to them placing a restraint on an individual's ability to earn a living. In the High Court case of Bartholomews Agri Foods v Thornton the court found that a six-month non-compete within a specified geographical area was not enforceable. The reasoning for this was that, at the time the contract of employment was agreed, the employee was employed in a junior role and had no dealings with the clients the restrictions were aimed at protecting. This case illustrates the importance of the construction of post-termination covenants at the outset of the employment relationship, ensuring that the drafting is tailored to the specific role undertaken by the employee and the risks to business interests if their employment were to terminate.
The Government launched a consultation at the end of 2020 on non-compete clauses in employment contracts seeking a view on two separate proposals aiming to "unleash innovation" and to "increase competition".
The first proposal considers making non-compete covenants only enforceable where the employer provides compensation for the period the ex-employee is subject to the restriction. This is common practice in other jurisdictions.
The second proposal involves a complete blanket ban on non-compete covenants altogether. The consultation closed in February 2021, and we are still awaiting the government's response on the proposals and how, in practice, they will impact both employers and ex-employees.
Employers can also protect themselves with seeking to prevent departing employees from soliciting or dealing with their ex-employer's customers. Such covenants are likely to be easier to enforce and, nine times out of ten, a prohibition on an ex-employee soliciting or dealing with their ex-employer's customers for a specific period post-termination will most likely offer the same level of protection as a prohibition on competition. This was the finding in the High Court case of Tim Russ and Company v Robertson . In this case the non-compete provision was deemed unenforceable as it was wider than necessary, in terms of time and geographical area, and the employer's business interests could be sufficiently protected through the non-solicitation and confidentiality restrictions placed on the ex-employee.
If employees have been communicating with customers on work devices, enforcing non-solicitation restrictions is likely to be practically possible for those operating in the retail sector.
Many years ago, retailers were able to safely protect the contact details of their clients by keeping their contact details locked away in a safe within the store, or by using encrypted password protected lists. Developments in technology has created a hurdle in ensuring such adequate protections.
Despite the inclusion of express contractual terms and the implied term of good faith and fidelity placed on employees during and after their employment in relation to confidentiality, it has become increasingly hard for employers to ensure that an ex-employee will not take or make copies of customer contact details on the termination of their employment. It is likely that high spending clients who expect nothing less than a personal service have not only bought into the brand they are purchasing, but also into the individual selling to them. They know each other; what their favourite styles or collections are, what they like to get up to at the weekend, their birthday and anniversary dates and even their pet's name. If the employee leaves one luxury retailer and starts a new role at another, half a mile up the road, what's to say that the customer would not jump ship so that they could visit their favourite sales advisor who is now working at a different luxury brand. "It's just a bag" is phrase luxury retailers blissfully ignore – but could it ring true here?
Last but certainly not least on the list of legal issues relevant to this topic is data protection. To meet data protection obligations, employers must ensure that customer data which is stored centrally or with sales advisors is protected and that customers are aware how their data is to be used or processed. Employers should also be able to demonstrate how they are taking all necessary steps to comply with data protection legislation, including the provision of adequate training to their staff.
Seeking to enforce restrictive covenants for an ex-employee acting in breach can be both a costly and timely exercise. The importance of setting out commercial interests and seeking legal advice on clear and unambiguous drafting is key at the outset.
The key steps to ensure adequate protection: