Do you need post-termination restrictions (restrictive covenants) in any of your existing employees’ contracts of employment to protect your business?
A recent High Court decision in Re-use Collections Limited v Sendall & May Glass Recycling Limited held that where an existing employee was provided with a new contract of employment containing post-termination restrictions without any additional benefit (legally known as consideration) these restrictions would be unenforceable meaning that the employer was unable to rely on them.
Mr Sendall had worked for his employer, Re-use Collections which is a glass recycling company since it was family-run but it had since left family control. He had no contract of employment. In February 2013, he signed a contract containing a number of post-termination restrictions including a 12 month non-competition clause and 6 month non-solicitation and non-dealing clauses. He resigned from his employment shortly after signing the contract to join a competing business.
The High Court held that the post-termination restrictions were unenforceable as Mr Sendall had not received any “real monetary or other benefit” for entering into the post-termination restrictions within the new contract. A benefit to provide the employee for entering into the contract might include a pay rise, additional holiday entitlement or a one off-payment.
In light of this decision, where you are considering issuing new contracts to existing employees, it is important to offer some form of consideration to the employee for entering into the contract to prevent a Court deciding that they are unenforceable.
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.
What types of post-termination restrictions can be used?
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 – This is more onerous than a non-solicitation clause where enticement or interference is required by the employee as this a non-dealing clause prevents the employee dealing with the customer or client where your customer or client approaches your former 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 competition against your business for a period of time after termination of their employment in certain capacities e.g. setting up in competition or working for as an employee for a competitor.
Careful drafting of restrictions is required
A post-termination restriction will only be enforceable if it protects a legitimate business interest. If it does not, it will not be enforceable as it is likely to be seen as restraint of trade. It is therefore important to draft these clauses carefully taking into account the employee’s specific role and your particular business.
If you require any assistance on the drafting of post-termination restrictions in new employee or existing employees’ contracts, contact Farleys’ specialist HR & Employment law department on 0845 050 1958. Alternatively please complete the online enquiry form and a dedicated solicitor will respond to your enquiry.