A Guide to Post-Termination Restrictions

A post-termination restriction (also known as a restrictive covenant) is a tool that we often see used by employers in an effort to protect its business interests by restricting the activities of an employee for a period after they leave the organisation.

Restrictions are also used in the contract of employment to prevent employees from working in competition or setting up a competing business whilst they are employed.

Post -termination restrictions are designed to strengthen trade connections by protecting an employer’s business relationship with customers, to ensure the stability of its workforce by not permitting leaving employees to take colleagues with them, and to ensure trade secrets and confidential information, stays confidential.

The use of restrictive covenants in employment contracts should be proportionate to the needs of the business. A one size fits all method is not usually encouraged and employers should consider tailoring restrictions to specific roles as this will help to justify the restriction in the event it is challenged.

Any restriction found to go beyond what is reasonably necessary to protect the interests of the business will likely be considered unenforceable. 

What are the different types of restrictive covenant?

Non-solicitation covenants: prevent poaching of clients/customers/suppliers of the former employer.

Non-dealing covenants: prevent a former employee from dealing with former clients/customers/suppliers.

Non-poaching and non-employment covenants: which prevent an employee poaching former colleagues.

Non-competition covenants: restrictions on the former employee working in similar employment for a competitor.

When is the restrictive covenant likely to be unreasonable?

An employee can of course seek to challenge a restrictive covenant if they find the burden of it removes any chance of them finding suitable alternative employment. Any court, when faced with the challenge of an employment restriction will assess certain factors to determine its reasonableness and enforceability.

The primary consideration will be whether the covenant is necessary to protect the legitimate business interest of the employer, but other factors can range from the geographic scope of the restriction to the duration of it, as well as the relevance of it to the employee and their role.

Geographical restrictions

Geographical restrictions seek to prevent an employee from carrying out any activities in a specified geographical area. Usually the larger the area, the harder to justify.

Whilst geographical restrictions remain useful for some employers, the ever-changing world of work and the amount of people that now work from home means that the use of geographical covenants has become less common.

Duration

One of the most significant considerations for any court in determining reasonableness, will be the duration of the covenant. Any restriction imposed for what is considered an excessively long time (12 months +) is not likely to be enforceable.

Seniority

We would always encourage employers to carry out periodic reviews of any restrictive covenants, not only to assess their reasonableness, but also to assess whether any contractual restrictions need updating or introducing in line with an individual’s role or status.

For example, should someone rise up through the ranks of an organisation, it is likely they will be privy to far more confidential information and projects than when first starting out in their career. As a result, their employer may wish to review the risks of them leaving the organisation free from any restrictions, in particular non-competition covenants.

Garden Leave

An employer may seek to limit the activity of an employee through Garden leave. Garden leave is often introduced prior to termination as a way of limiting what action an employee can take before they leave the business. An employee may find themselves on garden leave for the entirety of their notice period.

Obviously, the employee will be kept on full pay and benefits for the duration and as a result it is not always an attractive option for employers, but the use of garden leave together with properly drafted contract terms can be a solid way of reducing any risks to the business.

Restrictive covenants in settlement agreements

We usually find that post-termination restrictions are restated, amended or introduced into  settlement agreements.

They are often used to reinforce any restrictions already included in the employment contract, as a reminder to the employee of the commitments they have already made. They can also be used to introduce new obligations on the employees.

Our team are able to assist with a range of enquiries and HR support. If you would like any support in respect of post-termination restrictions, please contact us on 01983 897003.