Post Termination Restrictions
What is the purpose of post termination restrictions?
During employment employees will have access to many aspects of an employer’s business that they will want to legitimately protect, such as business relationships, client and customer details, confidential information, strategic plans and other business know-how. Many employers are understandably keen to protect their business on the exit of an employee or in the event of a team move.
Post termination restrictions aim to protect the employer from an employee using the know-how and contacts they have gained during employment for a period of time after they have left and to create stability in the workforce. It is important that the employer has evidence that the employee has agreed to the restrictions by having the contract signed.
If properly and accurately drafted they can give employers security that their business interests will be protected, however often a “one size fits all” approach is taken, and such clauses are too broad in scope or lengthy in time. It is vital that these clauses are drafted as narrowly as necessary to protect the legitimate business interest of the employer and go no further than this. Whilst employers often want to deter employees from harming the business after they leave, this can be counterproductive if the clauses are struck down as unreasonable leaving the employer with restrictions that have no effect at all. Furthermore, litigation in this field is extremely expensive for both parties and so drawing up restrictions that are likely to be enforceable and which also have the buy-in of employees is surely the best way forward for both.
What kind of restrictions are common?
Post termination restrictions fall into three broad categories:
- Non-compete – this type of restriction aims to prevent an employee from working for a competitor business for a period of time after they leave employment
- Non-solicitation – these clauses prevent employees from actively poaching co-workers, customers, potential customers or suppliers
- Non-dealing – broader than the above these clauses prevent employers from dealing with the employer’s customers, clients and suppliers.
Are post termination restrictions contained only in contracts of employment?
The most common place an employer will impose post termination restrictions is the employee’s contract of employment. However, on exit it is also common for settlement agreements to also repeat the restrictions or impose fresh ones.
In which cases are post termination restrictions considered unreasonable?
Post termination restrictions are only valid to the extent that they go no further than is necessary to protect the legitimate business interests of the employer. This is analysed in terms of the scope of the restriction by reference to its geographical scope, the length of time the restriction will bite and the breadth of the definitions used in the clause such as who is deemed to be competitor, client, customer or key employee, for example.
How does the court impose post termination restrictions?
An employer seeking to impose restrictions can apply to the court for an injunction which will prevent the employee from taking the proposed action which would breach the post termination restriction. Alternatively, if the damage has already been done an employer can make a claim for damages arising from the breach, so for example loss of business or the losses arising from the loss of employees who have been poached. We always advise employees intending to potentially breach restrictions and employers concerned that an employee might be taking action in breach to try and negotiate as a compromise will usually be advantageous for both parties. However, if this can’t be achieved we can advise on the best next steps.