The most common types are:
No. Restrictions must always be justified, even if your employee agrees to them. You need to be able to show the Court that there is a legitimate business interest to protect and that all covenants are reasonable. If you impose covenants which are unnecessary or too broad in scope, the Court will not enforce them against ex-employees and your business will be left exposed.
To ensure covenants are appropriate and reasonable for each individual employee, you should always seek specialist Employment Law advice.
Usually, legitimate interests include:
For the majority of employers, the need to protect confidential information and maintain relationships with clients is paramount. It is usually possible to put in place enforceable post termination covenants which are reasonable and still safeguard your business interests. Exactly how restrictive depends on your particular industry, the sector you work in, and the need to restrict certain employees such as sales people.
Whether a restriction is considered to be reasonable will depend upon a number of factors including the type of post termination restrictive covenant in question, the nature of your business, the seniority of your employee, the geographical restraint you impose and, most importantly, how long the covenant will last for.
Each restriction needs to be carefully looked at – taking into account the need of the business alongside your employee’s right to work.
A post termination covenant which is reasonable for one employee will not necessarily be reasonable for everyone in your business. If you are seeking to impose post termination covenants across the whole of your workforce, you will have to tailor the covenants to each individual job role.
Post-termination restrictions would normally be included in the contract that you provide to your staff at the beginning of their employment. It is possible that your employee will try to negotiate to reduce the scope of these post termination covenants, but if they sign the contract – or start work without signing or raising any issues with the contract – then they will be taken to have agreed to the restrictions.
If you want to introduce restrictions to existing staff, or vary their existing covenants, then you need to seek their agreement. You can do this simply in a letter or, better still, by providing them with a new contract. However, you also need to ensure that you provide consideration for the covenants such as a one-off payment, or more favourable terms. Doing so will show a Court that they have been validly agreed to.
In principle, yes.
It would normally be appropriate to ask a consultant to agree to non-solicitation and non-dealership clauses. A standard non-compete clause is usually only relevant in an employee/employer relationship rather than for freelancers who are self-employed. But if the business is niche, you may still be able to rely on a non-compete clause for freelancers.
Yes – in some cases it will be appropriate to reiterate existing post-termination covenants in your employee’s Settlement Agreement. It may also be possible to change or add to these.
This is particularly common where:
Even in Settlement Agreements, it is important to ensure that any post termination covenants are reasonable, since otherwise they could become deal breakers and jeopardise the completion of a Settlement Agreement.
Depending upon the circumstances, you may be able to apply to Court for an injunction which would prevent them from breaching the covenants further.
First of all, however, you should send a Letter Before Action and invite them to offer Undertakings.
This is because whilst an injunction might be extremely valuable to your business, the financial costs of litigating are high and injunctions are only ever discretionary. As such, it is important that you seek expert specialist Employment Law advice before taking this step.
If your employee takes away important clients and you lose business, you may be able to claim losses or even an account of their profits.