Employers are becoming increasingly concerned about their staff leaving and taking existing staff, clients or confidential information with them; or that they will go and work for a competitor and reveal market sensitive information. Consequently, employers are seeking to insert restrictive clauses into their employment contracts.
In the main, there are five post termination clauses which employers may include in a bid to protect their business interests:
Confidentiality clause – this places a duty on employees to maintain the secrecy of employers’ trade secrets or confidential information eg pricing, client lists, etc.
Non-poaching clause – this prevents ex-employees from trying to take existing employees with them to their new employment or business.
Non-compete clause – aims to prevent an employee from working for a competitor or setting up a competing business.
Non-solicitation clause – imposes restrictions on an ex-employee approaching existing or prospective clients with a view to doing business with them.
Non-dealing clause – similar to a nonsolicitation clause, it imposes restrictions on ex-employees doing business with existing or prospective clients even when the exemployee has not made the approach ie the client has approached them.
In theory, all of these clauses look very attractive but are they enforceable?
In the past, courts have been reluctant to enforce restriction clauses; however, in recent years there have been more cases where the courts have upheld the rights of employers although they are rarely water tight. When including post termination clauses in an employment contract, employers need to bear in mind some important factors which the courts use to determine the enforceability of such restrictions:
- Post termination clauses should not go further than necessary to protect the employer’s interest and they must not prevent the employee from “earning a living”. If the clause is too restrictive it will likely be struck out as unenforceable in court.
- The employer must be able to show that an employee’s potential actions could be detrimental to their business; ie there is a legitimate business interest to protect.
- Employers must be able to demonstrate that the restrictions are reasonable taking into consideration the employee’s position/role in the company. So employers may not wish to restrict a junior member of staff to the same degree they would senior management.
Employers should also safeguard themselves from all angles, including clauses in their client service agreements. Employers should include clauses preventing clients from poaching staff. It may be easier for companies to enforce a legal action against another company rather than against an employee.
For assistance in drawing up contracts of employment and developing post termination clauses contact Anita Wynne at Beststart HR on awynne@beststarthr.com or Tel: 01438 747 747.