Post-employment restrictive covenants
Post-Employment Restrictive Covenants are clauses usually found in a contract of employment which are intended to restrict the work activities of the employee when the employment relationship comes to an end.
There are several different types of post-employment restrictive covenants, with the main ones being:
- Non-Compete- where the employee is prevented from either working for a competitor or setting up in competition with the former employer.
- Non-Solicitation of clients/contacts – where the employee is prohibited from trying to solicit or induce clients/contacts away from the former employer’s business
- Non-Dealing – where the employee is prevented from acting for or dealing with a client/contact of the former employer.
Employees will generally want freedom to pursue opportunities and will not want to be restrained by the terms of their contracts from doing so. For example, employees may receive an offer of alternative employment within the same sector they currently work, or may want to set up their own business, which could put them at risk of competing with their current employer. Whilst these may present good opportunities for employees, the terms of their current contract may appear to prevent this, so it is important for employees to understand the enforceability of such restrictions.
Generally, restrictive covenants during an employee’s employment are enforceable, so an employee could not work for competing businesses at the same time. However, the position on covenants once an employee leaves their employment is more complicated. The Courts take a strict view on such covenants, starting with the view that these are unenforceable. In order to be enforceable, the Court will need to be convinced that they protect a legitimate business interest, and that they go no further than is necessary to do so. An obvious example is that a clause never to work in competition with the company again will be clearly unenforceable, whereas a clause not to solicit customers that is limited in time, scope and geography may be more reasonable.
Post-employment restrictive covenants usually form part of the terms of contract upon commencement of employment. It is important to give these clauses proper consideration. Whilst ending employment is probably the last thing on an employee’s mind when they commence employment, if the working relationship were to come to an end the employee doesn’t want the potential for a former employer to try and curtail those employees working activities.
As well as seeking damages for breach of covenant, a former employer could also try to obtain an injunction to prevent the employee from continuing to breach a covenant. Whilst the courts do not like issuing injunctions, if you find yourself on the wrong end of a successful application by a former employer, it could be a very costly exercise for the employee.
If you have been asked to accept post-employment restrictive covenants seek advice from one of our specialist employment team today.