Are Post-Termination Covenants Enforceable?

Introduction

Many contracts of employment particularly in respect of senior staff, contain clauses known as post-termination covenants or restrictive covenants which can still bind an employee even after the termination of the employment contract.  These clauses are designed to prevent employees from doing certain things after they leave the employment of the business.

Types of Post-Termination Covenants

Very broadly speaking there are four different types of post-termination covenants, which are as follows:-

1. Non-competition clauses

These seek to prevent the ex-employee from working for a competitor or a directly competing business, usually within a specific geographical area for a set period of time following the termination of the employment contract. 

1. Non-solicitation clauses

These seek to prevent the ex-employee from soliciting clients/customers, or potential clients/customers for a set period of time following the termination of the employment contract.

1. Non-poaching of employees clauses

These prevent an ex-employee from recruiting former colleagues for a set period of time following the termination of employment.

1. Confidential information clauses

These prohibit the use or disclosure of any confidential information (e.g. client/customer information, financial information, trade secrets etc.) acquired by an ex-employee during his or her employment. 

Are these clauses enforceable?

The starting point is that all such clauses are anti-competition and are in restraint of trade and therefore void.  If an employee challenges the validity of such a clause, the employer must prove that the clause is justifiable.  To do this the employer must show that the clause does no more than is reasonable to protect his legitimate business interests. 

What is ‘reasonable’ and what is a ‘legitimate business interest’ are complex questions and the answers do vary from case to case.

Matters that have been found to amount to legitimate business interests tend to fall within the following categories:-

1. Trade secrets and/or other confidential information.
2. Trade connections, clients/customers and suppliers.
3. The stability of the employer’s workforce.

However the categories of legitimate business interests is not closed or exhaustive.

One example of a post-termination covenant which may be valid and enforceable is, say, a clause which prevents a national sales director from working for a direct competitor for a period of 12 months anywhere within the United Kingdom.  However such a provision is unlikely to be enforceable against say a hairdresser who only deals with clients from the immediate locality. 

Another good example may relate to a clause prohibiting the solicitation of clients/customers.  If the ex-employee had introduced the client/customer originally to the business, it is unlikely that a clause prohibiting the solicitation of such clients/customers by the ex-employee could be enforceable. 

Specialist legal advice is usually required to draft such clauses and otherwise advise as to their enforceability.  It would be a cardinal sin to draft such post-termination covenants to discover subsequently that they are unenforceable so that there are no post-termination obligations upon the ex-employee.  We are experienced in drafting and dealing with post-termination covenants.  If you would like more information or advice on anything covered in this article then please contact the Chattertons Employment Law Team.