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Advice

Our experts discuss post-termination or restrictive covenants and offer some practical tips to former and current employers and employees

Post-COVID, the headlines have been littered with stories commenting on what has become known as “The Great Resignation”. The statistics tell the story behind the strapline with record numbers resigning and talk of the highest spike in resignations ever recorded. The reasons behind the spike are varied but many theorise that the shift is driven by an overarching changing attitude to work life balance. Whatever the reason for the shift, there is a very practical element that can make what may seem to be a very simple step of preparing a resignation letter far more complicated and careful navigation of the process is required by both employer and employee.    

Most employment contracts contain post-termination or restrictive covenants which broadly seek to restrict the actions of the employee after termination of their employment. This might include preventing solicitation of clients/customers, suppliers, other employees, or general competition for a defined period after termination in order to protect the employer's confidential information, stability of its workforce, customer connections and its goodwill.

With the spike in resignations and the recruitment market being ever increasingly buoyant, more and more employers are looking to rely on these protections with employees having to defend their position in response.

Whilst an employer cannot restrict the employee’s right to work post-termination, a business is allowed to protect its interests if it can show that it has a proprietary interest to protect and the covenants are reasonable. To ensure restrictive covenants are enforceable, amongst other things, they must be necessary to protect a business’ legitimate interest and not restrict the ability of the individual to go on to earn a living after working for the business. If they are not necessary to protect a legitimate interest, the enforceability can be challenged as a restraint of trade.

Enforceability will always depend upon the individual case and will be fact-specific but below are some of the key factors that will be considered by a court when considering enforceability:

  • The seniority of the individual – it is usual that the more senior the employee is, the more likely they are to be privy to trade secrets and important clients.
  • The role of the individual – an employee may have a client-facing role that makes non-solicitation particularly important or they may be heavily involved in the operation of the business and ideally placed to poach high performing employees.
  • The breadth of the covenant – the case of Herbert Morris Ltd v Saxelby from over 100 years ago remains good law and provides the covenant “…must afford no more than adequate protection to the benefit of the party in whose favour it is imposed". In practical terms, a restrictive covenant limited to key clients and key employees (defined if possible) is generally more likely to be enforceable than all clients or employees.
  • The duration of the covenants – this should not be for longer than is reasonably necessary and any blanket attempt to deny the employee the right to work in a specific industry is not looked favourably upon by the courts.
  • Location restrictions – in some cases it may be reasonable to restrict competition for a period of time in a defined location. As with all of these factors, this will turn on the nature of the business. The wider the geographical restriction, generally, the more heavily scrutinised it will be.

The Dispute Resolution Team at Weightmans regularly assists both employees and employers to navigate the challenges associated with enforcement of restrictive covenants which, in many cases, can be remedied with the giving of undertakings although in some cases, where there is an immediate threat to the employer’s business, injunctive relief may be the only option.

Practical tips

Former employers:  It is important to act quickly if you suspect a breach. The court is much more likely to grant an interim injunction if you have acted quickly rather than where weeks or months have passed before taking action.

Employees: Your employment options may be limited for a period of time post-termination if you do have enforceable restrictive covenants and may impact on where and when you can work. It is important to consider the implications of these ahead of any resignation and, where you are challenged post-termination, to take advice on your options swiftly.

Current employers: Be mindful of how you are recruiting and obtaining new customers/clients, particularly if you are aware that introductions are being made by a new employee who may be subject to restrictive covenants - you could find yourself at the end of a claim for inducing a breach of contract.

For advice on employment contracts, policies and procedures, speak with our employment contract solicitors.