1st February 2018
It’s quite rare these days for someone to have the same employer for their entire working life. People leave jobs for many different reasons such as career progression, better pay, family commitments, health issues, redundancy or relocation.
Whatever the reason, employers will often want to ensure departing employees do not use the confidential information they have come across and contacts and connections they have built up throughout employment to damage the employer’s future business interests. The usual way employers try to achieve this is by including post-termination restrictions (otherwise known as ‘restrictive covenants’) in an employee’s contract of employment such as:
Employers can also include restrictions protecting their business from outgoing employees interfering with prospective business opportunities or prospective customers.
It is a common misconception that post-termination restrictions are ‘not worth the paper they are written on’. The legal position is that they could be enforced against an employee if the employer can prove they have a ‘legitimate proprietary interest that is appropriate to protect’ (e.g. trade connections, stability of the workforce or client relationships) and the protection sought is ‘no more than is reasonable having regard to the interests of the parties and the public interest’ (e.g. the restriction is not too long in duration or too wide in scope).
Unfortunately, there is no definitive guidance setting out which type of post-termination restrictions will be enforceable and which ones will not, as this will depend on factors such as the employee’s seniority, the strength of their relationships with key customers/clients and employees, and the confidential information they had access to as part of their role.
Any attempts to restrict an outgoing employee's freedom to trade must consequently be for a limited time only. An employer will need to consider how long it will be before competitive activities by the ex-employee represent less than a material threat to the employer’s business. This will of course vary, and should be carefully considered for each employee. If the restriction is found to be unreasonably long, it will be unenforceable.
When considering a non-poaching of employees restriction, an employer must consider factors such as how long after termination the ex-employee’s influence over certain employees will remain. Again, if it is found that no such influence exists, or it does but the length of the restriction is unreasonably long, it will not be enforceable against the former employee.
There is also the question of whether an employer would test their enforceability before the courts. Some employers may choose to include restrictions in their contracts to try and deter employees from joining a competitor or poaching staff, but don’t actually take any action against the individual if they do, other than perhaps getting their solicitors to send the employee and their new employer a strongly worded letter threatening legal proceedings.
On the other end of the scale, some employers will take legal action to protect their business interests, most commonly by way of an injunction. However, obtaining injunctions can be extremely costly and time consuming, so an employer will need to weigh up the benefits of such action against the likely damage the employee’s proposed actions could do to the business. If an employer does apply to the court for an injunction, the consequences of an employee breaching a valid restrictive covenant can be severe and costly.
Of course, the best time to seek advice on the enforceability of post-termination restrictions (whether you are an employee or an employer) is at the outset of the employment relationship, before signing any contract.
Perhaps you might have a client following that you are bringing to a new employer and want to ensure that you can still deal with these clients should the new employment relationship not work out. Our specialist employment team at Mundays would be happy to advise on such terms before you sign on the dotted line.
If you have post-termination restrictions in your existing employment contract, it is important you understand their implications, and where necessary take advice if you anticipate they may have an impact upon your next career move. If you are an employer, don’t forget to check the restrictions in the contracts of prospective employees before recruiting them to avoid employing someone who can’t carry out the full range of duties their role requires.
Issues to consider when deciding if post-termination restrictions are enforceable:
Issues to consider if they are likely to be enforceable:
Sophie Banks is an experienced employment lawyer with a background in advising large commercial and public sector clients. She provides clear and pragmatic advice to clients to help find solutions that balance both legal and commercial requirements. Sophie deals with all types of Employment Tribunal claims for employers and employees. In addition, she advises on a broad range of employment law issues and documents (such as settlement agreements and contracts), drafts all types of employment-related documentation and presents seminars on a variety of employment law issues. Sophie can be contacted on 01932 590581 or firstname.lastname@example.org
The contents of this update are intended as guidance for readers. It can be no substitute for specific advice. Consequently we cannot accept responsibility for this information, errors or matters affected by subsequent changes in the law, or the content of any website referred to in this update. © Mundays LLP 2018.
Within this edition of Mundays Business update you will find legal articles that we hope you will find useful and help you understand when you might need to seek legal advice.
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