Post Termination Restrictions

Introduction

In English law all restraints on trade are contrary to public policy and therefore void. However it is possible to design a covenant that protects the legitimate business interest of an employer.  As long as it goes no further than is reasonably necessary to protect the employer's interests, a court will uphold the covenant.

The courts recognise that:
 

• it is in the public interest to promote competition
  

• there is an inequality of bargaining power between an employer and employee.
  

Therefore the courts are very keen to find any reason to strike down a restrictive covenant.

Legitimate business interests

There are four legitimate business interests which the employer is entitled to protect:

• trade secrets or confidential information
• customer connections or goodwill
• supplier connections
• employee connections.

The employer will wish to protect those legitimate business interest by preventing the ex-employee:
 

• competing
• soliciting customers or suppliers
• dealing with customers or suppliers
• enticing away employees
• using or disclosing confidential information.

Reasonableness

If the employer can demonstrate that it has a legitimate interest to protect then it must go on to show that the covenants extend no further than is reasonably necessary to protect the interest.

Confidential information

Information may come into one of four categories:
 

• trade secrets
• confidential information
• amounting to the general skill of the employee
• is trivial or in the public domain.

 

Trade secrets will be protected even if there is no express duty of confidentiality.

Confidential information will only be protected during the employment and afterwards if protected by express covenant (competition/solicitation/dealing/confidentiality).

Information which is in the public domain or known to the employee as part of his general skill and knowledge cannot be protected pre- or post-termination.

It is sometimes difficult to distinguish between the first two categories and also the second two.  In the latter case the obvious example is the names and addresses of customers.

An express confidentiality clause specifies what information the employer considers to be confidential.

Reasonableness of express covenants

The courts will take into account the following factors:
 

• The seniority of the employee - A senior employee is far more likely to learn confidential information or to gain influence over customers.

 

• Nature of the business/activities of the employee - The employee should only be restrained from carrying out the sort of business in which he was employed.

 

• The duration of the covenants.

 

• The business activities of the employer.

Non-competition covenants

In addition to the above factors the courts will consider the geographical extent of the area of prohibited activity.

Termination

If an employee is wrongfully or unfairly dismissed the employer will not be able to enforce the restrictive covenants in the employee’s contract of employment.

Employer’s should make sure their contracts of employment have:
 

• pay in lieu of notice provisions
  
• express 'garden leave' provisions.
  

This should ensure that an employee is not wrongfully dismissed.

Practical steps to take

• Make sure employees are motivated and properly rewarded.
  
  
• Recognise the value of the employee and thank him for his efforts.
  
  

• Recognise the employee’s need for leisure time and family life.
  
  

• Provide a career structure.
  
  

• Review the employee’s terms and conditions of employment and carry out appraisal on performance on a regular basis.
  
  

• Consider the use of long term incentives.
  
  

• Involve the employees in management.
  
  

• Carry out risk assessment of competitive activity by employees (top to bottom) including the likely degree of damage.

 

• Institute proper reporting structures.

 

• Ensure controls are kept on which employees have access to confidential information.

 

• Monitor correspondence, e-mails, telephone calls, expense claims (remembering to take account of the employee’s legal rights).

 

• Monitor removal of company property from the employer’s premises.

 

• Ensure employees take proper holidays including one period of 10 consecutive working days.

 

• Ensure that customers regularly deal with a number of employees.

 

 

If you would like to discuss how we might help you, please:

 

• call any of our office numbers listed at the bottom of this page;
• contact one of our specialists direct by clicking on their name below; or
• complete our enquiry form

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Members of our team specialising in this area:

Rosine Dawson, Andrew Peck, Mark Thompson

Jordan Glackin