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A hot topic for me of late has been post-termination restrictive covenants in contracts of employment, with several matters arising on their enforceability.

A question I often get asked is whether restrictions can really be enforced, and in the short, the answer is “yes”!

I say this with a cautionary note though and the construction of clauses dealing with post-termination restrictions is very important.

KMBlog

Restrictions should be:

  • Reasonable.
  • Protect only legitimate interests.
  • Be no wider than necessary.

Go beyond this and my answer changes to “probably not”! The court will have discretion in assessing and enforcing post-termination restrictive covenants and restrictions that are deemed unreasonable will not be upheld.

Why bother?

You may be reading this and wondering what the point is if they aren’t a simple matter to enforce and my clients often express feelings of frustration when I discourage wide-ranging ‘catch all’ restrictions. As much as businesses are entitled to protect legitimate interests, restrictive covenants having the sole aim of preventing competition are not likely to be upheld by the court. Nor is it appropriate to impose restrictions that would subsequently prevent an employee from earning a living.

Post-termination restrictive covenants can be enforceable where they seek to protect:

  • Trade connections with customers, clients or suppliers.
  • Trade secrets and other confidential information.
  • The stability of the workforce.

The key is to ensure that they are tailored for individual circumstances (so consider new ones if you promote an employee to ensure they are still fit for purpose), expressly documented so that the meaning is clear and that each restriction is expressed separately so that if any element is unenforceable it does not render the whole clause useless.

It is also important that any contract of employment containing restrictive covenants is signed by the employee (we want the restrictions to be binding)! Any later arguments by the employee that they did not fully appreciate the implications of the restrictive covenants, or that they did not receive legal advice are likely to fail where they have signed to indicate their agreement.

And if you want them to be really tight…

If restrictions are business critical and a business is motivated to seek legal recourse in the event of a breach, it might be worth considering executing them as a deed. Including a requirement for the employee to obtain their own legal advice prior to signing could also thwart any excuse that the restrictions were not understood from the outset!

EST HR can help you to ensure that your contracts of employment are fit for purpose and contain post-termination restrictive covenants to suit your business.

Get in touch if you’d like a free contract review.