As an employment lawyer I am often asked if a post termination obligation within a contract of employment can be enforced. Usually, the employer will be in a situation where one of their employees (usually a key sales executive, business development manager or client/customer focussed manager) has left the company and started working for a competitor. They will often produce an out of date contract of employment and towards the back of this document they will point to a clause dictating that the employee is unable to work for any other company within the same sector for a period of 3 years often with some sort of geographical restriction.
In such a situation the employer will be unable to rely upon such a clause, as it will be considered unreasonable. This is not an easy thing to tell an employer who is looking at serious damage being inflicted to his business by the departing employee. Unfortunately, it is too late at this point to address an issue that required dealing with before the end of the employment.
The starting point for any employer is to identify whether there is a legitimate business interest that needs to be protected. In some cases this will be obvious, such as a sales executive in a recruitment agency who has developed close working relationships with the customers and clients of his employer. Assuming this is the case, the employer should consider restraint clauses that go no further than is necessary to protect those business interests. The main legitimate business interests which may need protection are as follows:
(i) customer/client connections
(ii) trade secrets
(iii) confidential information
(iv) stability of the workforce.
Employees have a general duty of confidentiality during employment. However, once the employment has come to an end an ex-employee is entitled to use confidential information for his/her benefit to the extent that such information has become part of his/her own general skill and knowledge. However, this will not extend to include any trade secrets. It is important to be aware that there is no general ongoing duty of confidentiality post termination of employment.
Without appropriate restrictive covenants there is very little protection for employers once an employee has moved onto new pastures. However, there are various ways that an employer can seek to protect some or all of the above mentioned business interests and for the purpose of this article we will look at the main post termination restrictions available in the UK. There is an over-riding requirement that these clauses must be reasonable in order to be enforceable.
The first of these is a non-solicitation clause. These covenants seek to protect the employer's customer connection by preventing the ex employee from soliciting the custom of the employer's clients and customers. It is advisable that the pool of customers/clients be limited to those with whom the ex employee had personal dealings within a specified (and reasonable) period before the termination date.
A non-dealing clause will prohibit the ex-employee from dealing with clients and customers and is considered more onerous that a non solicitation clause. Unlike a non- solicitation clause there is no requirement to prove the ex-employee solicited or attempted to solicit the custom of the client as the restriction actually prevents him/her from dealing with the customer/client. Normally, a non-dealing clause will be used alongside a non-solicitation clause.
Where an employer wishes to restrict or limit the ability of the ex employee to go into competition, they will rely upon a non-competition clause. This will prevent the ex-employee from engaging in a competitive activity to that of the employer. Such a clause should identify the actual activity that is prohibited and there is usually a geographical limit from the employer's business. However, it is important to note that this type of clause is viewed cautiously by the courts and will not be upheld if it is considered that the intention is simply to limit or restrict competition.
In order to maintain the stability of the workplace an employer can rely upon a non-poaching clause which prevents the ex employee from employing or soliciting other employees of the employer's business. It is recommended that any such clause should be limited to those employees with whom the ex employee had personal dealings during his employment and who hold a relatively senior position or have a particular expertise.
In summary, an employer who is seeking to protect its business should consider the application of post termination obligations within the contract of employment. Failure to do so will mean the employer has very little protection from key employees whose employment has come to an end. However, if an employer decides to include some or all of the above mentioned covenants it is important that careful consideration is given to the precise wording of the clauses to ensure that they can be enforced if it becomes necessary. It is worth noting that employers who tend to rely upon a standard precedent that has been used for many years without giving any thought to whether it would meet the required legal standards is running the risk that such covenants could be found to be unenforceable.
If you do have any concerns about the wording that is currently contained in your standard employment contracts then it is recommended that you take immediate advice. This will enable you to make any necessary changes so that when you are faced with a departing employee you can be confident that your business is protected.
For more advice this or any other employment related matter, please contact Dean Parnell on 08701 417 154 or email webenquiries@sydneymithchell.co.uk
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