Post-termination restrictions are often written into employees’ contracts of employment to prevent them from trying to poach your customers and staff when they leave. It’s often said that it’s hard to enforce restrictive covenants but this is not the case as long as they’re well drafted.
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 can’t 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 shouldn’t 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’s considered unreasonable to have a non-complete clause preventing an employee from working for a competitor. However it’s recognised that in order for a business to protect its legitimate interests it can sometimes be reasonable to prevent the individual from working for a competitor for a period of time.
Note that the courts will not always enforce a restrictive covenant. They will only do so if it’s considered 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 considered unreasonable would be where an employer is seeking to prevent a former employee from ever soliciting any of its clients. A covenant that stops contact with “all” clients “forever” will usually be unenforceable. A more appropriate clause would be limited to customers who the employee had dealings with, for example, in the 12 months before his or her last day of employment. Similarly, stating that the former employee can never contact these customers is unlikely to be enforceable. It would be better to say that he or she can’t contact these customers for a period of “x” months after their last day of employment. The length of time that would be appropriate would depend on the employee’s role in the company. For some employees it might be six months, and others, nine or twelve.
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’re 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
If you find that you need to enforce restrictions because a former employee is in breach, you will ultimately need to take your former employee to court. However, before you do this, there is action you can take which may be enough to deter your former employee from any further breaches of the contractual restrictions.
Start by reminding the employee of the restrictive covenants when they are leaving by drawing their attention to the clause in their contract. A good time to do this would be when you accept the employee’s resignation in writing. If you then become aware of an employee breaching the restrictive covenants, you can write to the employee and their new employer asking them to cease and desist and explaining that you will take the necessary action to defend your legitimate business interests if necessary.
This is usually enough to deter a former employee from continuing to breach their restrictive covenants.
When drafting contracts of employment, you’re advised to seek advice to ensure any restrictions you include are proportionate and reasonable in the circumstances so that they can be enforced when required.
For advice on your restrictive covenants, please do give us a call on 01271 859 267.