Post-termination restrictive covenants: What you need to know

When it comes to employment contracts occasionally businesses place a post-termination clause to protect their best interest and to prevent ex employees from carrying out certain activities. These are also referred to as restrictive covenants and non-compete clauses. Such clauses are included in a Contract of Employment with the aim of protecting the employer’s legitimate business interests, such as preserving client relationships. However, they are notoriously difficult to enforce.

The key to ensure the reasonableness of the clause, is to tailor the clause appropriately, taking into account;
● the role,
● the employee’s seniority within the business,
● their length of service,
● and if the employment relationship terminated, what would be the potential impact on the employer if they breached the restrictive covenant clause?

The burden of showing that the restrictions placed on the employee are limited to what would be reasonably necessary to preserve the client relationship is down to the employer. What is the business interest being protected? This can be particularly difficult where there has been only a relatively brief period of employment and only a short amount of notice is required to end the contract.

Therefore, it’s important employers revisit restrictive covenant clauses when an employee’s role changes, they have more responsibility for example, more client contact and/or more seniority within the business. The notice period may change to reflect this. If an employee has a short notice period, this would indicate that the employee’s services are not that important or they are in a junior position, hence low risk for the business. A more senior employee, who did pose a risk to the employer in the event the employment terminated, would typically have a longer notice period to reflect this.

However, when assessing the reasonableness of the restriction, it has to be considered at the point in time when it is entered into and not when it is being enforced. A restriction that is unreasonable and therefore invalid will not become valid as the employee advances in the organisation. It is therefore important that as the employee progresses, a new contract with greater restrictions, and a longer notice period, should be agreed.

Updating covenants recognises that as time goes by, the employee will have developed personal relationships with clients which will be protectable business interests and it will also show that consideration has been given to the individual circumstances rather than one standard set of terms being used for both new starters and more senior executives.’
At Cluer HR, we are extremely experienced in drafting contracts of employment which offer both flexibility and protection to our clients. Perhaps you’ve read this blog and realised you don’t have restrictive covenants or yours were written some time ago and are a little out of date? Please get in touch to see how we can help.

 

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