29 April 2016: Are Post Termination Restrictions Enforceable?
This week the Department for Business, Innovation and Skills has announced has announced a ‘call for evidence’ on whether post-termination restrictions in employment contracts act as a barrier to employment, innovation and entrepreneurship. But what are these post termination restrictions, and when are they enforceable?
Non-compete clauses are designed to prevent ex-employees from working for competitors or soliciting clients from their former employer for a specified period after employment ends. They are only enforceable in time and scope if protecting legitimate business interests.
For example, if you wish to stop a salesman from approaching your clients for six months after he leaves, such a clause may well be enforceable. If you wish to prevent him from working in competition in your industry for 18 months after he leaves, that is probably not going to be enforceable, if it does not protect a legitimate business interest and if it unreasonably prevents him from earning a living in his field.
Some of the key principles which the Courts currently apply when asked to enforce post-termination restrictive covenants are:
Reasonableness: Was the clause reasonable having regard to the interests of the parties and the public interest when it was entered into?
Legitimate interest: Did the employer have a legitimate interest in terms of protecting the employer’s trade connections with customers or suppliers, confidential information and maintaining the stability of the workforce?
Employment generally: Restrictive covenants in employment are generally viewed more strictly than in a normal commercial arrangement because of the inequality of bargaining power of the employee.
Preventing competition: What is the purpose of the restriction? Prevent competition must not be an end in itself. Non-solicitation clauses are much more likely to be enforceable than a generic non-complete clause.
No Wider than Necessary: Was the restriction no wider than necessary to protect that interest?
For many businesses, client contacts are a key asset of the business. It is sensible to take time and care to ensure that you have appropriate post termination restrictions in place to protect your business.
It remains to be seen whether the BIS ‘call for evidence’ prompts changes to the law. Arguably though, entrepreneurship will be damaged if businesses cannot protect their hard-won clients from being poached.
Reculver Solicitors is a firm of employment lawyers advising on post termination restrictions and other matters. Call or email us today to discuss your situation further