Employment Law Solicitors Malton, York & Wetherby
How employers can protect their business interests with post-termination restrictions
Post-termination restrictions can be included as part of an employee's contract of employment.
The restrictions come into being upon termination of employment so as to limit an employee's ability to damage the business interests of their former employer.
Some employers are not aware of the extent to which they can use post-termination restrictions to protect their business interests whilst others use them in a way which renders them legally unenforceable.
This short guide is intended to provide information to employers as to the type of restrictions which they can include in their contracts of employment and the limitations of which they should be aware.
What types of restriction should an employer consider?
- Non-solicitation covenants. These can apply both in respect of an employer's customers and as well its employees. They can prevent a former employee from soliciting customers and poaching staff on leaving employment.
- Non-dealing covenants. These go further than preventing an ex-employee from taking active steps to solicit business. They cover the situations where a customer approaches a former employee, for example.
- Non-compete covenants. These can prevent former employees from being involved in a competing business.
- Non-employment. These can prevent a former employee from working in a specific industry, for example.
Are they are enforceable?
The law says that provisions which restrict an employee's activities after termination of employment are void for restraint of trade. That is, unless they can be shown to protect the legitimate business interests of the employer and extend no further than reasonably necessary to protect those interests.
The extent to which they are enforceable by the Courts depends on how reasonable they are. Factors such as duration, scope and what is common practice in the relevant industry are all relevant.
Tips for employers to follow:
- Always include a time limit on restrictions (12 months should usually be the maximum).
- Include a limit on the scope in terms of geographical location, for example, where this is appropriate.
- Include a severance clause in the Contract of Employment. Including something as simple as this means that if one restriction is deemed to be void then the remaining provisions may still be legally enforceable.
- Consider off-setting any period of garden leave against the duration of any restrictions. This approach is favoured by the Courts and will ensure that the restrictions are more likely to be classed as reasonable if challenged.
- Avoid breaching the terms of the Contract of Employment. If an employer is in breach of the Contract of Employment then they will not be able to enforce the restrictive covenants against an employee. This is regardless of the extent to which the provisions are reasonable.
Pearsons & Wardare able to draft post-termination restrictions tailored to your specific business needs. We are also able to provide advice as to enforceability.
NB. This guide does not provide a full statement of the law and readers are advised to take legal advice before taking any action based on the information contained herein.
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