What to do when your talented employees strike out on their own
One of the overriding themes in the industry at the moment is the need for young talent. A variety of programs are being put in place to encourage young people to consider mortgage broking as a career. And, as brokers see their businesses expand, they may begin to look for talented new entrants to help handle their workload.
The danger, of course, in bringing new talent onboard, is they may one day decide to strike out on their own once they’ve built up a sufficient trail book. This is understandable, given that broking is at its heart an entrepreneurial venture. But brokers bringing on staff can do a few things now to ensure that the best parts of their business don’t walk out the door with their talented employees.
Law firm Holding Redlich outlined the potential damages to an organization when an employee moves on, as well as how they can minimize risk.
Stephen Trew, partner at Holding Redlich, stated that 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 says.
All of this can also result in a competitor gaining an advantage. Departing employees 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. For mortgage broking businesses, for example, a restraint of trade agreement could refer to client lists and leads.
Jennifer Teh, senior associate at Holding Redlich, stated restraints of trade can protect an employer from a number of risks – but it must protect a legitimate business interest. The three areas recognized by the courts include confidential information, customer connections and staff connections.
Most brokers won’t begrudge talented protégés striking out on their own, but a clearly delineated agreement at the beginning of an employment period can save a messy exit at the end.
Points of action
Conduct a risk assessment.
The risks each organization face will vary. 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.
Consider remuneration strategies.
This may feed into reasons 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.
The danger, of course, in bringing new talent onboard, is they may one day decide to strike out on their own once they’ve built up a sufficient trail book. This is understandable, given that broking is at its heart an entrepreneurial venture. But brokers bringing on staff can do a few things now to ensure that the best parts of their business don’t walk out the door with their talented employees.
Law firm Holding Redlich outlined the potential damages to an organization when an employee moves on, as well as how they can minimize risk.
Stephen Trew, partner at Holding Redlich, stated that 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 says.
All of this can also result in a competitor gaining an advantage. Departing employees 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. For mortgage broking businesses, for example, a restraint of trade agreement could refer to client lists and leads.
Jennifer Teh, senior associate at Holding Redlich, stated restraints of trade can protect an employer from a number of risks – but it must protect a legitimate business interest. The three areas recognized by the courts include confidential information, customer connections and staff connections.
Most brokers won’t begrudge talented protégés striking out on their own, but a clearly delineated agreement at the beginning of an employment period can save a messy exit at the end.
Points of action
Conduct a risk assessment.
The risks each organization face will vary. 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.
Consider remuneration strategies.
This may feed into reasons 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.
