It is usual for employers to insert clauses (especially into senior employees’ contracts) which seek to restrict their conduct post-termination. It is also, however, becoming more and more common for employers to put these into the contracts of junior employees. But what are they?
The types of post termination restrictive covenants which you may find in your employment contract are:
- Non- Competition Clause – This seeks to prevent you from working for a competitor in a similar role to the one you previously held, and also prevents you from setting up a competing business.
- Non-Solicitation Clause – This imposes a duty not to approach your ex-employers customers or prospective customers. Usually, this is with specific reference to those customers you had direct dealing with for the 12 month period prior to your termination date.
- Non-Dealing Clause – This is more onerous than a non-solicitation clause in that it prevents you from dealing with your ex-employers customers whether you encourage them or not. So if they approach you, the restriction would bite in the same way as it would by you soliciting them.
- Non-Poaching Clause – This aims to prevent you from taking key employees with you to your new employment or business
In order to be enforceable, the restrictive covenants will need to prevent you from one of the above activities for a set period of time after termination of your employment (usually 6, but sometimes 3 or 12 months).
Whether such clauses are actually enforceable against you will depend upon the particular circumstances of the case. However, the following principles will usually be taken into account:
- The clause must not be any more restrictive on the employee than is reasonably necessary in the particular circumstances to protect the employer’s business. If the clause is too restrictive then it is likely to be struck out as unenforceable by the Courts. For example, if a clause seeks to restrict your dealing with “all clients”, this is likely to be too wide and therefore unenforceable. If the clause, however, only seeks to restrict those clients that you have had a “material” dealing with in the 12 months prior to your termination, then this is likely to be upheld.
- Your employer must be able to show that they have a legitimate business interest which requires protection. They cannot simply seek to restrict an employee competing against them just for the sake of it after they have left. They need to be able to show the employee’s potential actions could have a detrimental effect on their business.
- What is reasonable will depend upon the employee’s position within the business. For example, it will be more reasonable to seek to restrict the actions of senior employees who are regularly in contact with the customers and contacts of the business than it will be to seek to restrict the actions of the office junior.
If you do have restrictive covenants in your contract, your options post-termination can be severely limited. This could leave you unable to start work with a new employer for the period of time set out in the agreement. This is usually six months but is sometimes up to a 12 months.
You may decide to ignore the restrictions when you leave and go and work for the employer of your choice, and taking your clients and contacts with you. You would, however, run the risk of your old employer issuing legal proceedings against you to enforce the restrictive covenants. They could even have grounds for seeking an injunction restraining both you and your new employer from being in breach of the covenant.
Such applications are rare, but you should nevertheless not recklessly breach your covenants without first taking professional advice. It could otherwise prove very costly.
For more information, please contact Philip Landau 020 7100 5256