Post-termination restrictions are used by many organisations, but it’s important to draft them appropriately to ensure that the restrictions are enforceable.
Why are Restrictive Covenants used?
Restrictive covenants are normally used to lay out conditions on when and where employees can work once their employment is terminated or they resign. However, it’s important to bear in mind that not every restrictive covenant is applicable, or even possible to enforce in every situation.
For example, restrictive covenants cannot be used solely to prevent competition, in order for them to be enforced, they must protect the legitimate business interests of the Company. This normally refers to confidential information or customer and client information. Another key point is that the restrictive covenant should not go further than is reasonably necessary to protect those interests.
In many cases, employers will be protected by restrictions that prevent misuse of its confidential information and from solicitation of particular customers. In some situations it is deemed unreasonable to have a non-complete clause preventing an employee from working for a competitor however it is sometimes recognised that in order for a business to protect its legitimate interests is to prevent the individual from working for a competitor for a period of time.
The courts will not always enforce a restrictive covenant. They will only do so if it is deemed necessary to protect the legitimate interests of the former employer. In reaching a decision they will balance the individual’s right to earn a living with the employer’s right to protect its interests.
So what is unreasonable?
An example of a restriction that is likely to be deemed unreasonable would be where an employer is seeking to prevent a former employee from soliciting its clients. A covenant that stops contact with “all” clients will usually be unenforceable. A more appropriate clause would be limited to clients with whom the employee had dealings with e.g. in the last 12 months.
Employers will not be able to enforce an employee’s restrictions if they have committed a serious breach of contract for example, where an employer terminates the employment without notice and makes a payment in lieu of their notice period when there is no contractual right to do so.
In some circumstances, the court can remove sections of a restrictive covenant where those sections would have prevented it from being enforceable. However, employers shouldn’t rely on this because the courts cannot re-write a restriction that is poorly written in the first place.
Why is it important to get them right first time?
Where restrictive covenants have been rejected in the courts it’s usually because they are worded poorly, or an employer has tried to impose a restriction that isn’t necessary for that employee.
Therefore it’s essential that restrictive covenants aren’t used in a generic sense, they should be tailored to the business and the individual concerned otherwise it’s likely that they will be unenforceable. With this in mind, it’s important when drafting restrictive covenants to ensure that they are relevant, proportionate and reasonable.
How to enforce restrictions, and acting quickly
In order to enforce the restrictions the former employer must take the individual to court, however when employers become aware of a breach of a restrictive covenant it’s important that this is acted upon quickly. For instance, where a sales rep has joined a competitor five months ago and there is a six-month non-compete restriction within the contract it is unlikely that a court would grant an injunction five months into the restricted period.
Employers should always seek advice to ensure their restrictions are proportionate and reasonable in the circumstances to ensure that they can be enforced when required.
For advice on your restrictive covenants, contact Fitzgerald HR for more information.