Post-Termination Restrictive Covenants and Employment Contracts
Every organisation has information that is confidential and crucial to the running of its business. Whether it be financial data or client lists, this information can be invaluable to the success of the organisation, and protecting it will be of the utmost importance.
Departing employees are often well-placed to take advantage of confidential information, including strategic plans, customer and client details, and other information about their ex-employer’s business, after the termination of their employment. This is where post-termination restrictive covenants and confidentiality clauses within employment contracts come in handy.
These clauses can:
- Stop ex-employees using confidential information gained at their old workplace in their new job;
- Restrict an ex-employee’s ability to start up a business that competes with their ex-employer; and
- Prevent an ex-employee “poaching” their ex-employer’s business contacts, clients or employees (within a set time frame).
If you’d like to discuss how our specialists can help you solve any restrictive covenant issues relating to employment, click here to request a call back.
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How Loch Law can help
We can review and offer expert legal advice on the terms of your existing post-termination restrictive covenants and confidentiality clauses within employment contracts. Alternatively, we can draft new restrictive covenants and/or confidentiality clauses within employment contracts for you to ensure they’re up to date and comply with UK employment law.
We also routinely act on behalf of employers in relation to civil litigation, including injunctive relief applications, negotiating undertakings, enforcing post-termination restrictions, and pursuing damages claims arising from breaches of restrictive covenants.
In the absence of enforceable covenants, we can help you demonstrate and attempt to enforce an ex-employee’s implied duties of fidelity and confidentiality under their contract of employment.
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Are there any legal restrictions for the employer?
Employees may argue that post-termination restrictions are void on the basis they are a restraint of trade, namely they prevent the employee working or carrying out their trade. They might also argue a restriction is too wide or doesn’t actually protect a legitimate interest. In the event of a dispute between the parties, the courts are often required to adjudicate on the enforceability of particular covenants.
Carefully drafted covenants are therefore essential. To give an employer the best chance of being able to rely on its restrictive covenants, it must be able to show that they are designed to protect the legitimate business interests of the organisation and go no further than is reasonable to protect those interests.
Restrictive covenants having the sole aim of preventing competition will not generally be upheld by the courts. A non-compete restriction must be designed to protect anemployer’s confidential information, trade secrets or customer connections, and prevent an employee from obtaining an unfair advantage by exploiting these for their own, or another employer’s, benefit.
Non-solicitation clauses are therefore looked on more favourably than pure non-compete clauses.
Our flexi-retainer provides access to commercial and bespoke HR and legal solutions. The benefits of a retainer package include:
- An affordable way for businesses to access all of Loch Law’s services;
- If the services aren’t needed for a month, the time allocation rolls over to the next;
- Based on a fixed monthly fee, which allows you to manage finances, but also have the flexibility to buy in other services when you need them;
- Pick a package which suits your needs now, and move onto another arrangement at any time.
What interests can an employer protect?
As mentioned above, restrictive covenants that have the sole aim of preventing competition are generally unenforceable. However, it is well recognised that restrictive covenants can be used by an employer to protect the following legitimate business interests (amongst others):
- Trade connections – an employer can protect its connections with its customers, clients or suppliers. This is the basis for most ‘non-solicitation’ covenants.
- Trade secrets and confidential information – an employer can protect its trade secrets and confidential information. In this context, the courts have previously recognised that it can be legitimate to stop employees working for competitors in order to protect confidential information, even if the employee is also bound by contractual confidentiality restrictions.
- Stability of the workforce – an employer has a legitimate interest in maintaining a stable workforce. This can be used to justify clauses restricting ex-employees from poaching and/or employing their ex-employer’s staff.
What can an employer do if an employee breaches their restrictive covenants?
If an employee breaches binding restrictive covenants, they can be required to pay damages to their ex-employer. The employer can also seek an injunction to prevent further breaches or to require the employee to take specified actions (e.g. delivering up and/or destroying confidential information in their possession).
The employer may also consider taking action against any new employer of the employee. They will only be able to do this in certain circumstances (e.g. where the new employer induced the employee to breach their covenants), but this route can be attractive given the new employer is likely to have deeper pockets than the employee.
What can a restrictive covenant achieve for my business?
When it comes to reviewing what a restrictive covenant - in relation to employment law - can achieve for your business, start by considering what you want to protect and what risks a departing employee might pose. For example, an ex-manager might have a strong influence over the staff they once managed and this might create a risk they’ll be able to poach those staff, to the detriment of your operation.
Once you know what you want to protect and the risks that exist, you can ensure your covenants are specifically drafted and stand a good chance of being upheld.