Post-termination restrictions

The do's and don'ts for employers

Post-termination restrictions, the do'd and don'ts for employers

Post-termination restrictions are often used to protect a firm from an ex-employee to prevent them from dealing with clients, suppliers, competing with the firm or poaching staff. There is a general misconception that these restrictions are not enforceable. Whilst this is not true, the post-termination restrictions should be carefully drafted so that if action against an ex-employee is required the restrictions are for legitimate business interests and the protection is reasonably necessary.

It is important to make sure that you:

Do:

  • Remember that a post-termination restriction will be enforceable if a legitimate business interest is being protected and the restriction goes no further than is necessary to protect that interest. Consider the type and length of restrictions required when an employee joins the company, taking into account their position and the industry involved;
  • Ensure that restrictions are updated when an employee is promoted or changes roles. Non-solicitation and non-dealing restrictions may not be applicable at a lower level but may wish to be added as an employee progresses. To ensure a restriction is enforceable consideration should be offered, either money or money's worth. A new restriction may be in consideration of the new role or the consideration may be the pay increase involved in the new role; and
  • Enforce any breaches of restrictions by your ex-employees and new employees joining you. Failure to take action immediately against ex-employees could be used against you. New employees under covenant from ex-employers should be advised in writing that they should not breach their restrictions. This will assist in defending any claim that you have induced a breach.

Don't:

  • Place identical restrictions on all staff. Is it really necessary to give the sales staff the same restrictions as the managing director? Failure to amend restrictions in line with the specific role could render them unenforceable as the legitimate business interest will not be clear;
  • Ignore a letter from a new employee's ex-employer which alleges a breach of restrictions. Speak to the employee, make it clear that any breach is not appropriate and must stop, and ensure this is confirmed in writing. This will assist in defending against a claim that you induced the employee to a breach;
  • Don't assume that a "radius" clause (don’t work within a certain radius of the place of work) is automatically enforceable. A correlation between the radius used and the client base will need to be shown. A hairdresser may have clients within a certain area but professional services are more often able to act for clients across the country and a radius is less likely to apply; and
  • Employees, don’t assume that your ex-employer will not take action, even if you believe the restriction is too onerous to be enforceable. Your ex-employer may contact your new employer or issue an injunction against you and/or the new employer, which you will be obliged to defend at a substantial cost.

For further legal advice and information concerning employment law please contact Wendy Davidson on 01733 882800, email wendy.davidson@hcsolicitors.co.uk or visit our website.

Author

Wendy Davidson, Solicitor

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This article has been prepared for general interest and information purposes only; it does not constitute legal advice and should not be relied on as such. While all possible care has been taken in the preparation of this article, no responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by the firm or the authors.