Protecting your agency’s database, listings, and rent roll from departing employees is crucial. A well-drafted restraint of trade clause in employment agreements can prevent former employees from soliciting your clients, but it must be reasonable and legally enforceable.
Are Restraints of Trade Enforceable?
Yes, courts have upheld restraints on employees, provided they protect a legitimate business interest and were reasonable at the time they were signed. However, a restraint that is too broad—such as an outright ban on working in real estate—will likely be struck down as unreasonable and against public policy.
What Makes a Restraint Clause Enforceable?
To ensure your restraint clause is enforceable, it should:
Protect the agency’s legitimate business interests (e.g., client relationships and confidential information).
Be reasonable in scope and duration, such as restricting a former employee from contacting clients for 6 to 12 months.
Be included in an up-to-date employment agreement—restraints are contractual, so a poorly drafted or outdated clause may not hold up in court.
Protecting Confidentiality and Intellectual Property
Beyond restraints, employment agreements should include strong confidentiality and intellectual property clauses.
Courts regularly enforce these provisions, preventing former employees from misusing the agency’s confidential information, client lists, or marketing materials.
The Importance of Liquidated Damages Clauses
One of the biggest mistakes I see in employment agreements is the lack of a clear liquidated damages clause for breaches of restraints. Without this, agencies may struggle to recover meaningful compensation if an ex-employee poaches clients.
For example, in the absence of a pre-agreed damages formula, courts may limit damages to the restraint period’s earnings loss. If a former employee breaches a 6-month restraint, courts might only award 0.5 times the recurring rent roll income—far less than the 3 to 4 times multiple at which rent rolls are typically valued.
A well-drafted liquidated damages clause could specify that an employee must pay a threefold multiple of lost property management fees if they breach the restraint and take landlords with them.
This provides certainty and stronger financial protection for your agency.
If you want to safeguard your agency from ex-employees targeting your database, listings, and rent roll, your employment agreements must:
Include clear and reasonable restraint of trade clauses.
Have strong confidentiality and intellectual property protections.
Contain liquidated damages provisions to ensure financial compensation for breaches.
As competition intensifies, agencies must take proactive legal steps to protect their business assets. Reviewing and updating employment agreements before issues arise is the best way to prevent costly disputes later.
Comments