When a key employee leaves your organisation one of your biggest concerns is whether or not they are about to steal your clients and intellectual property. To limit what a former employee can do, or what they can take from your business, it is common practice to include post termination restrictions, also known as restrictive covenants, within your employment contract.
The Government is currently considering whether post termination restrictions unfairly hinder employees from moving freely between jobs or even stifling entrepreneurship; this blogs highlights the risk areas and what you should consider before overloading your contracts with onerous covenants that may be legally unenforceable.
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1. Types of Post Termination Restrictions
The standard types of restrictions which are used by employers are:
- Non-competition – these place restrictions on your former employee working in similar employment for a competitor;
- Non-solicitation– this prevents them from poaching your clients/customers/suppliers;
- Non-poaching – this prevents from poaching their former colleagues.
2. Risk Considerations
For Post Termination Restrictions to be enforceable they shouldn’t be too broad. In the event of a clause being challenged, it will be down to you as the Employer to show that the clause is justified and sufficiently narrow. You should be aware of certain factors:
- The breadth of the geographical area of any restriction and the length of time of the post termination restriction must be justified. It is unlikely that a wide geographical area will be justified and, generally, a restriction for more than 6-12 months will be difficult to defend.
- The breadth of the activities that you are trying to restrict.
- The type of interest being protected should also be considered, information such as trade secrets may be granted more protection than customer information.
- You may also be required to evidence the actual connection between the employee and any information that you are trying to protect.
Your clauses must be relative to the employee’s position within your business. As more senior employees will be in contact with more sensitive information, more onerous restrictions placed upon them may be justified. Overall, a one-size fits-all approach with post termination restrictions could result in them becoming unenforceable.
It is best to review your post termination restriction clauses periodically. We recommend reissuing a contract when you promote an employee and revising the post termination restrictions accordingly; the reasonableness of a restriction is judged at the time it was entered i.e. if a senior employee can evidence that the post termination restrictions they are bound by were actually signed up to when they were still a junior employee, this could result in the terms being void, such as in the case of Bartholomews Agri Food Ltd v Thornton .
3. What to Consider When Drafting Post-Termination Restrictions
Remember that it is for you to show that the restraint sought is reasonable, imagine the starting point being that any restriction is null and void until you can prove otherwise!
Courts will jump on any uncertainty in the drafting so ensure that the wording and any definitions you use are crystal clear and not open to alternative interpretations.
You should consider:
- The likely future reality and what protection you will actually need.
- What a reasonable duration of restriction might be. For example, what is the shelf life of the confidential information the employee might be privy to?
- Whether, as an alternative, a garden leave clause would provide you with similar protection.
Note: Any introduction of new or varied post-termination restrictions should be directly linked to an improved financial package or increased seniority / responsibility.
It’s worth bearing in mind that although post-termination restrictions can be enforced and defended they are often best used as a deterrent. Any legal challenge of them will come at a cost to you (legal fees / investment of time) so by making them reasonable and practical the risk of them being contested is minimised.