We all know that departing employees have the potential to hurt your business. Including restrictive covenants (i.e post-employment restrictions) in their contracts is a useful tool to help employers combat this risk. Tactically, some businesses will just use them to act as a deterrent, but their true value is when they are legally enforceable.
Easier said than done though, right? Well, let’s see if I can help you with that and avoid any sleepless nights over the issue.
The general legal rule is that any contractual term restricting an employee's activities after employment will be void, unless you can demonstrate that: (a) you have a legitimate business interest to protect; and (b) the protection sought is no more than is necessary, bearing in mind the different interests involved. As this is a tricky area for employers to get right, I have summarised my top 5 tips for employers when drafting and dealing with these restrictions.
1. Think carefully about which restrictions you need and why – some are more difficult to enforce than others!
The types of post-employment restrictions used in contracts range from clauses preventing the solicitation of employees, suppliers etc to non-competition clauses and more. If litigation results, then you need to be able to justify the restrictions you have included and why.
Legitimate business interests can include protecting confidential information, client relationships and employees, but the restrictions still need to go no further than is necessary.
The courts have to balance the employer’s interests against the employee’s right to work. A non-competition clause (e.g preventing them from working for a competitor in a certain radius) is of course much more restrictive than a non-solicitation clause stopping them going after clients who they worked with in the last 6 months. Non-competition clauses are much more difficult to enforce as a result.
As a general rule, the longer the restriction (e.g 12 months or 18 months after termination) then the more difficult it will normally be to justify too.
2. Draft restrictive covenants clearly and narrow them to fit the business needs
Make sure the restrictions are clear and understandable. Any ambiguity in the restrictions will be construed against you in court! Careful drafting is needed and this is an area where legal advice is often sought as a result.
Ultimately, if the restrictions are too wide, then they are less likely to be enforceable so try and keep restrictions specific to the employee and the work that they did. For example, it is narrower (and more likely to be enforceable) to confirm that they cannot deal with clients who they had material involvement with over a set time period than it is to say that they cannot deal with any clients of the business.
3. Use different restrictions for different roles in the business. Also, if an employee is promoted, don't forget to re-visit the restrictions.
The restrictions that work for a standard role may not be appropriate or extensive enough for a senior manager. It is not uncommon for employers to have different restrictions and contracts for different job roles as a result.
Another common issue that I see is where employees are promoted in a business, but the initial restrictions in the employee’s contract are not reviewed. A practical tip is to have a promotion checklist for staff that refers to reviewing their restrictions and other matters to be addressed on promotion (e.g asking payroll to change their pay, changing the contractual terms, are there any PR opportunities around the promotion and more).
4. An obvious point that is often overlooked in my experience – make sure that the employment contract is actually signed by the employee!
I know you already know this one, but seriously this crops up time and time again! Always ensure that employment contracts including the restrictive covenants are signed by the employee. This is helpful evidence to show that the employee has agreed to be bound by the restrictions and will save you a headache later.
5. Remind employees of their ongoing obligations owed to you when they leave
This can easily be done in a leaver letter and at the same time as dealing with leaver matters generally. It is useful to specifically remind the employee of the restrictions in the contract (i.e they can’t say they forgot / didn’t know about them on leaving). It also demonstrates that you are fully aware of the obligations they still owe to you, which may mean they are less inclined to breach them.
There's a quick overview of my top tips for UK employers.
I hope that you found this blog useful and fingers crossed that you have most of this covered already! If you do require any advice on post-employment restrictions, please do get in touch with me on firstname.lastname@example.org.
Your contract might restrict what work you can do next, but your employer can only do this if it’s needed to protect their business. If there’s nothing in your contract you can take any job you like.