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How enforceable are your post termination restrictions?

 

Post termination restrictions are often found in employment contracts to seek to protect the employer if and when that employee leaves. A well known type is a non-compete clause.  An employee may have an extensive awareness of confidential information, business tactics and desirable clients.  Because of this employment contracts often contain clauses that seek to restrict that employee’s subsequent business activities in a way that may be commercially harmful to the former employer.

Essentially, the key with such provisions is to ensure they are reasonable, drafted appropriately and tailored to the needs of the parties. If a clause seeking to restrict a former employee is too wide and restrictive there is a risk it will not be deemed reasonable and may not be enforceable.  Of course if a clause is too narrow this may entirely negate its purpose.

When considering post termination restrictions in employment contracts, it is important to consider how a Court will view any such restrictions. This is because a Court will consider what is known as the doctrine of restraint of trade.  Namely an employer will have to show has a legitimate proprietary interest which is appropriate to protect and such protection is reasonable in the circumstances.

The Court’s approach in these cases is largely influenced by the inequality in bargaining power between an employer and employee.  Therefore such restriction is likely to be strictly interpreted in determining whether it is reasonable.  Generally the Court’s tend to deem business connections, business secrets and the stability of the staff legitimate interests worthy of protection.

In 2016, the Government started an investigation to look into whether such clauses are too restrictive and could prevent former employees from starting up their own business. The Government is yet to provide any report on its findings and whether such restrictions have any negative effect on entrepreneurial spirit, but we expect an update soon.

It may make practical, commercial sense for you to protect your business by including post termination restrictions in your employment contracts. However, you should always carefully consider the way and the circumstances in which such clauses are drafted to ensure you do not fall foul of lack of enforceability.

If you have any questions about the enforceability of your restrictions or if you are an employee who may be affected by any restrictions and would like to discuss further please contact our disputes team

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