Post-termination restrictions, also often known as restrictive covenants, have been in the news recently with promises from the Prime Minister, Andy Burnham, to review their use and fairness in todays’ economy and workforce.
Post-termination restrictions are contractual terms that limit an employee’s activities after their employment ends and are usually found in employment contracts, settlement agreements or in a separate standalone agreement between employer and employee.
Post-termination restrictions are used to protect the legitimate business interests of an employer, including confidential information, customer relationships and workforce stability.
Restrictions are usually in place for a prescribed period which can give an employer an opportunity to strengthen customer relationships and protect commercially sensitive information.
Post-termination restrictions are particularly useful where an employee has significant influence over key business relationships such as customers or access to business plans, pricing or trade secrets.
The most common restrictions businesses tend to put in place are:
Whether post-termination restrictions are enforceable will depend on the circumstances and the individual clause wording.
For post-termination restrictions to be enforceable, an employer needs to show that the restrictions go no further than reasonably necessary to protect its legitimate business interest. Case law has shown that courts assess key points including the duration, activities being restricted and carried out, the scope of the customer and geographical limitations against the employee’s role.
Post-termination restrictions should be tailored for each employee, their role and individual circumstances of their employment.
An employer should be able to justify the scope and duration of each restriction intended to be imposed otherwise there is a risk that it can be challenged as unenforceable.
Contracts should be reviewed on promotion or role changes, with clear agreement and appropriate fresh consideration (for example, a pay increase) when introducing new restrictions during employment.
Where employers use a garden leave clause this should be taken into consideration against the restricted period. For example, where a restriction last 6 months after termination and someone is on garden leave for 3 months, the period of the restriction is reduced by 3 months. This means that in reality they are only restricted for the period from when they stopped working not when their employment actually ended.
Where a breach is suspected, employers should promptly preserve evidence and obtain advice on enforceability and the employees alleged conduct. Delay can undermine the practical value of urgent relief.
Options include requesting an explanation, sending of a cease-and-desist letter, seeking an urgent injunction and claiming damages for proven loss.
Depending on the evidence, a new employer that knowingly induces a contractual breach may also face a claim.
Employees should obtain advice before signing an employment contract that contains post-termination restrictions. Before commencing employment is the best time to discuss any concerns with an employer regarding the restrictions.
Restrictions that have been drafted in a settlement agreement should also be considered carefully and discussed with the legal advisor as they are more likely to be enforceable, and employers are more likely to seek legal action to enforce them than terms contained in the employment contract.
Possible reasons to challenge restrictions include excessive duration or scope, lack of a legitimate interest, or restrictions inappropriate to the role. Employees can seek a written waiver, negotiate more tailored restrictions or ask a court to determine enforceability.
If you are faced with a cease-and-desist letter, it is important you respond promptly. If you are unsure or need assistance, take legal advice where appropriate as soon as you can and before signing anything.
If you are a business and need assistance with creating bespoke post-termination restrictions or if you are faced with a former employee who is acting in breach of agreed restrictions, please do get in touch as we would be pleased to assist you – 01983 897003.
Appointments are available by telephone or via video call, so no matter where you are in England or Wales we can assist you.
The information contained in this blog post is provided for guidance and is a snapshot of the law at the time it is written. It is provided for your information only and should not be used as a substitute for obtaining legal advice that it specific to your particular circumstances.
The guidance should not be relied upon in any decision making process. It is strongly recommended that you seek advice before taking action.
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