In the case of Square Global Limited v Leonard, the High Court considered whether the absence of a garden leave set-off clause would deem a non-compete clause in a Contract of Employment unenforceable.
Facts of the Case
Mr Leonard was employed by Square Global Limited as a Broker from February 2015 until he resigned without notice on 11 November 2019. At the time of his resignation, he had been in advance discussion for over 7 months with a rival financial services business about leaving his employer to join them instead.
Square Global Limited issued a claim against Mr Leonard. Square contended that Mr Leonard had breached various terms of his Contract of Employment including a clause requiring him to give 6 months notice to terminate his employment. Square Global sought a declaration from the Court that Mr Leonard remains an employee until 11 May 2020 along with an order preventing him from undertaking competitive employment or any other form of work with a third party whilst he remains an employee. Secondly, they sought injunctive relief to enforce certain post-termination restrictions in the Contract of Employment. These would prevent Mr Leonard from involvement in competitive activity against Square for 6 months following 11 May 2020. Thirdly, Square sought damages due to Mr Leonard’s refusal to perform his duties as a broker.
Mr Leonard’s position was that his resignation on 11 May 2019 was not wrongful and was a constructive dismissal. He asserted that he resigned from his employment with immediate effect following a course of conduct by his employer over several years that destroyed or seriously damaged the relationship of trust and confidence between them in breach of the implied term in the Contract of Employment.
The Court accepted that Mr Leonard was in breach of his 6 months notice period which would have expired on 19 May 2020 during which the employer had the discretion not to require him to perform any services. The non-compete clause then applied for a further 6 months following the 6 months notice period.
It was held that the absence of any provision stipulating that there should be a set-off between any period spent on garden leave during the notice period and the period of time during which the non-compete restriction would apply did not mean (on the facts in this case) that the 6 months non-compete clause was unreasonable.
To minimise the likelihood of arguments over the enforceability of post-termination restrictions being raised by employees along with the associated time and legal costs, employers need to ensure that post-termination restrictions are carefully drafted and are tailored to the specific employee.
What are post-termination restrictions?
Post-termination restrictions (also known as restrictive covenants) can be included within an employee’s contract of employment to protect the business’ interests by restricting the employee’s activities for a period of time after the employee’s employment has ended.
Types of post-termination restrictions
Typical post-termination restrictions include the following:
Non-solicitation – This prevents an employee from soliciting or enticing customers or clients for a period of time after they have left your business. This type of restriction is often appropriate where an employee has a strong relationship with certain customers or clients;
Non-dealing – A non-dealing clause prevents an employee dealing with the customer or client where your customer or client approaches your former employee. This is more onerous than a non-solicitation clause where enticement or interference is required by the employee;
Non-poaching of employees – This prevents an employee poaching existing employees in your business for a period of time after their employment has ended; and
Non-competition – This type of clause can prevent the former employee competing against your business for a period of time after termination of their employment in certain capacities e.g. setting up in competition as a sole trader, partnership or limited company or working as an employee for a competitor.
The only types of post-termination restrictions that are enforceable are those that protect a legitimate business interest. If yours does not, it is likely to amount to restraint of trade, and therefore will not be enforceable.
It is important to carefully draft your clauses so that they take into account the specific role of the employee and your particular business. You should also ensure that you regularly review your post-termination restrictions, especially when an employee is offered a role in a more senior position.
If you require any advice on the drafting of employment contracts or enforcing post-termination restrictions, please contact Farleys’ employment team on 0845 287 0939 or send us an enquiry online.