An important challenge for employers is how to protect the business from former employees. While working for the firm, employees may acquire knowledge of confidential information of a strategic or technical nature. They may also develop close relationships with clients and key colleagues.
Can these valuable assets be protected at all? The starting point for a UK court is that restrictions after the end of employment are an unlawful a restraint of trade and not enforceable for public policy reasons. Indeed, there is a common myth that post termination restrictions are not enforceable at all.
In fact it is possible to protect the business from competitive activity by ex-employees. It is essential that it is a legitimate interest which is protected- things like client connection, confidential information or keeping a stable trained workforce. It also has to be reasonable as to duration and the extent of coverage.
Something we always remind employers of, is that protection starts during the employment. You can make sure you have a well-drawn up confidentiality clause: this helps demonstrate to a court with greater precision why the business is threatened by the employee’s knowledge of particular vital information. Also, once an employee has given notice you should have in place a garden leave clause during which time they can be kept away from clients and access to sensitive data. The benefit of a garden leave clause is that the employee remains bound by a broader range of restrictions as defined by their contract of employment. It is also more likely to be considered a reasonable restraint given the fact that the employee is still being paid.
Post-employment restrictions are also permissible:-
Typically these include:-
- Non-competition clauses
- Restrictions on soliciting or dealing with clients or other vital contacts
- non-poaching of key employees.
A non-competition clause is a blunt instrument which may be considered to be unreasonable in some cases. The business should ask itself what is the minimum necessary to protect the business? Would a clause preventing dealing with the clients not be sufficient? It is recommended to narrow the clause to cover only the geographical area the individual operated in. It is also common to make the period of restriction shorter than, say, a non-solicitation clause so that it appears more reasonable.
Non-dealing and non-solicitation covenants are more likely to be enforceable but should be framed in a limited way. For example, if the clause covers all clients or prospects rather than just those the employee had contact with it may be too broad. Also, it is usual to limit the clients covered to those the employee was in contact with recently, say in the last year prior to termination. Clauses of 6-12 months after the end of employment may be reasonable any longer and there is little chance of them standing up to judicial scrutiny. Again, the test, is what is the minimum necessary to protect the business. A sensible and common practice in drafting is to knock off from the period of restriction any time spent on garden leave as a judge would look at the whole period of restraint in assessing reasonableness.
It is also important to bear in mind that a “one size fits all” approach will not work. A 12 month period of restriction might be considered reasonable for a very senior employee but possibly not for a junior sales person. A court will also look at the legal formalities adopted at the time the contract was entered in to and ask questions such as whether proper consideration was given at that time.
Litigation in this area is expensive. It takes place in the High Court and usually involves instructing top specialist barristers. Get it wrong and a company will be throwing good money away. Get it right and the business will be able to obtain an injunction to prevent further damaging activity and vital interests will be safe. While in most cases the wronged party will seek injunctive relief as its main aim, damages may also be recovered where losses have already been incurred. This is also an area where the facility of a speedy trial may be available to resolve matters at a much earlier stage than is usual in civil litigation.
The key point for businesses to appreciate here is that early advice and precise drafting can have huge value once a key employee leaves and becomes a commercial threat.
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12 November 2020, 10:00–11:00