Helen Badger, employment law expert at Browne Jacobson, reflects on the lessons to be learnt from the Pop Idol/X Factor row on limiting the damage of staff defection.

The antics of the X Factor show are never far from the headlines. Last month was no exception, as drama once again hit the X Factor stage. This time, however, it was not the contestants that hit the news.

Louis Walsh and Sharon Osbourne took a backseat as the show’s mastermind, Simon Cowell, found himself facing a possible £100 million legal battle with Pop Idol creator Simon Fuller, over claims that Cowell poached staff and copied Fuller’s idea for a TV show format.

An out-of-court settlement meant that the showdown between the two music TV heavyweights was avoided, luckily for Cowell and his production crew, who risked being found to have been in breach of contract for ‘defecting’ from Pop Idol to X Factor, despite having signed contracts prohibiting them from working for a rival TV show.

Cowell was fortunate to escape a court ruling, but the dispute paints an illuminating and all –too familiar picture of the battles employers can face when former staff join competitors.

The talent contest
It is a natural part of business life that staff move on and sometimes become rivals, competing against those who helped them hone their skills. So what can employers do to protect their companies from the prospect of staff going to work for a competitor, or even setting up in competition and taking customers and valuable intellectual property with them?

The most obvious step is to include clauses in employment contracts restricting the activities of the employee after termination of employment – so-called “restraint of trade” clauses, or “restrictive covenants”. Having done so, if staff go to work for rival firms, employers like Fuller have two potential claims:

• A claim against the employee for breach of contract, allowing the company to seek an injunction preventing him or her from going to work for the competitor.




• A claim against the new employer for inducing staff to breach their contract.

The latter will as a rule tend to be the more potentially lucrative claim, as the new employer is likely to have deeper pockets than an individual. Had the X Factor/Pop Idol battle gone to court, Fuller would have been claiming against Cowell’s estimated £50 million fortune.

Restrain your restraint
When seeking to include this kind of protection in employment contracts, employers must consider several ‘X’ Factors when shaping the restraint they wish to place on staff.

The key is to ensure that clauses are reasonable in their restraint. The general legal principle on restraint of trade clauses is that they are only enforceable if they represent a proportionate means to protect a legitimate business interest.

Employers should consider what specific business interest needs protecting, and design restrictive clauses to reflect this. What is most valuable to the business: the ‘know-how’ of the ex employee, the customers they may take with them, or the intellectual property they have access to?

Once employers have identified the unique asset the company needs to protect, they should look to develop a proportionate means of protecting this. To make sure their restrictive covenants are bulletproof, employers must ask themselves honestly how long the restriction needs to last, and whether it can be narrowed down to a specific geographical location or a certain market, sub-market or particular group of customers.

Ultimately, it is worth bearing in mind when building protection into employment contracts that a limited restriction is more likely to be enforceable. For instance, in the X Factor case, it is possible that a “rival show” may have proved too broad a definition for a court to uphold, whereas a more specific clause, for example specifying a “show based on a pop talent contest format”, may have been considered enforceable.

Clauses should also be limited where possible to a specified time period (6-12 months, depending on the seniority of an employee), and clauses on non-solicitation of customers should relate only to customers the employee has dealt with during such a period.

In summary, if they are to hope for the support of the ultimate judges – the courts – employers must keep restrictive covenants proportionate to business needs and interests.