Employees are often your front line connection to customers and clients and, depending on the industry and role, can build up significant connections and be privy to confidential information which could damage your business if the employee decides to move on. So what can you do about it?
Restrictions on employees can work if carefully considered and drafted.
Key concerns for any employer are usually to protect confidential information and client relationships. Employers are understandably keen to make sure that the employees in question cannot use the information or contacts they gain during their time in employment to help their next employer, or even to directly compete when they leave. Below are the various methods open to an employer to protect their position.
Confidentiality
Whilst there is a general duty of confidentiality implied into every employment contract, there can be confusion as to what information the employer regards as ‘confidential’. In addition, the implied duty only extends, to that which is so confidential it amounts to a ‘trade secret’. However, information that does not meet the criteria of a trade secret could also be hugely damaging if disclosed. For this reason, it is advisable to have express confidential information clauses in employment contracts to set out what information the employer regards as highly confidential. This will create an additional safeguard both during the period of employment and after it ceases. An employee will find it much more difficult to deny the information was confidential if that fact has been expressly communicated to them.
Post-termination restrictive covenants
Employers should also consider ways of protecting their clients, current employees and business secrets (beyond express confidential information provisions) when an employee leaves the business. A way to do this is to insert ‘restrictive covenants’ in employment contracts, which seek to prevent the former employee from undertaking certain activities after their employment has ended.
There are a number of different restrictive covenants that may be used in employment contracts to protect your business. For example, a non-solicitation covenant will restrict a former employee from attempting to seek the custom of one of your clients. This can be made even wider (if appropriate) by preventing an ex-employee from having any dealings with your clients (a non-dealing covenant). A non-competition covenant may restrict a former employee from engaging in a competitive business within a certain geographical area. You may also restrict a former employee from ‘poaching’ key staff.
However, post termination restrictions are void in principle, unless they protect key business interests and are no wider than is reasonable to protect those interests.
The touchstone: reasonableness
The legal position regarding post-employment restrictions is complex and whether you are entitled to enforce a restriction in court will depend on a number of factors. However, the main consideration is that the restrictions must be reasonable in all key respects; including in relation to the application of restrictions to a particular individual/role at all, the length of the restricted period or the nature and scope of the restrictions (ie, what the restrictions seek to stop the employee doing).
Some illustrative points by way of example:
- ensure that restrictions are only applied to the employees/ roles/ seniority that could cause the most damage to your business if they left
- a restriction preventing a hairdresser from being employed at another salon anywhere in the UK, would not be enforceable where the business seeking protection is a small local salon.
Other important factors
When and how you introduce post termination restrictions will also affect whether they are enforceable. As an example, post termination restrictions introduced part way through employment will need the employee’s agreement but also require formal “consideration” to be binding – whether a one-off payment; a promotion; a salary increase or new benefit(s). The key is that there needs to be an agreement that clearly connects the new terms/post termination restrictions with appropriate valuable consideration.
The drafting must also carefully reflect the position.
Summary
Post termination restrictions can be a useful tool to protect your business but they must be considered and deployed carefully and appropriately.
Employers have a number of mechanisms available to them to protect their business. Clear and effective contractual provisions will be a significant factor in safeguarding commercial interests and employers concerned about protecting their business assets should not seek to rely solely on the general implied position. The presence of such contractual provisions often act as a deterrent to former employees considering competing with the company or using its sensitive information for their own ends.
Should it be necessary to commence proceedings to protect your business interests, including seeking injunctions, it is crucial that the contract terms are clear, well-drafted and reasonable to maximise the chances of successful enforcement.
Our employment solicitors can assist with advice and drafting for new or varied employment contracts, including the restrictions referred to in this briefing.
