Part 2: 'Jumping Ship but Avoiding a Splash' - A Guide to Post Termination Restrictive Covenants

Mark Owen – Health & Safety Expert

August 20 2015

You can read Part 1 here. 9. Fellow Employees To maximise the chances of the enforceability of a non-poaching covenant, the definition of fellow employees should be limited to (1) current employees employed by the employer when the employment terminated and with whom the employee had had material dealings during a specified period prior to the termination of their employment and (2) by reference to some element of importance for example seniority. 10. Consideration In order to be able to argue that a restrictive covenant is enforceable, an employer must be able to demonstrate they have provided consideration to the employee.  Where restrictive covenants are contained in contracts of employment this is not usually an issue, as consideration will take a number of forms such as salary and benefits derived from the contract.  However, where an employer chooses to place restrictive covenants in separate side agreements, then care must be taken to ensure that adequate consideration is given. 11. Updating Covenants Restrictive covenants should be reviewed, refreshed and updated, particularly when an employee’s role changes or they are promoted.  And, employers should always use changes to employment contracts as an opportunity to update any relevant restrictive covenants.  Indeed employees may be more amenable to agreeing to fresh restrictive covenants when offered a pay rise or a promotion. 12. Garden Leave Including both a garden leave clause and post termination covenants in a contract of employment can give an employer two options, when they are concerned with the protection of their interests following an employee’s departure. There are also a number of advantages to garden leave.  The employee continues to owe all of his contractual duties to their employer.  It may allow for a useful handover period.  And a paid period of non-competition may be more palatable to them than an unpaid period. However the main disadvantage is that the employer will still need to continue to provide them with their contractual pay and benefits, unless they have been expressly excluded in the contract. Such garden leave clauses and restrictive covenants can also be used in conjunction with each other.  Indeed to increase the chances of enforcing restrictive covenants they should provide that the restricted period under such covenants will be reduced by any time spent by the employee on garden leave. 13. Constructive Dismissal An employer who breaches an employee’s contract of employment may not be able to rely on post termination restrictive covenants in that contract of employment, on the grounds that the entirety of the contract is no longer enforceable because of the employer’s breach.  An issue to be mindful of, particularly when dealing with potential issues of gross misconduct. 14. Departing Employees Most employment contracts will state the minimum period of notice that should be given in the event that either party wishes for it lawfully to come to an end.  If therefore an employee, particularly a relatively senior one in a customer facing role, hands in their resignation, an employer should embark upon immediate damage limitation.  And that might include:- (1) Placing the employee on garden leave (2) Requiring them to surrender their company laptop and mobile phone (3) Instructing them not to contact either customers, suppliers or their colleagues (4) Monitoring social networking sites (5) Interviewing other employees to find out what the employee’s intentions might be, and (6) Holding an exit interview, when the extent of the restrictive covenant agreement, and the businesses intention to robustly enforce it, is made clear. 15. Action Stations But what action can be taken if am employer believes that a former employee is in breach of their restrictive covenant agreement? Don’t rely on office gossip.  Undertake an investigation and obtain some credible evidence. Hire in a computer expert to interrogate their computer, and speak directly to those customers whose business they may have attempted to solicit. Realistically assess the impact on the business and the loss already sustained or likely to be sustained.  Make sure that the substantial time and money involved in any forthcoming legal action will amount to a worthwhile investment. Write to the former employee (and their new employers if appropriate) with a “warning shot across their bows”.  They should be required to sign an undertaking confirming their agreement to abide by the terms of the restrictive covenants.  And if there is no response by a set deadline, then this can be used as further evidence in support of possible legal action. Above all seek advice.  Peninsula has access to specialists in this area of the law, who can advise on what forms of legal action are available to help businesses protect themselves from this type of risk. Peninsula is also able to help businesses draft appropriately worded restrictive covenants that strike the right balance, between deterrence and enforceability. And the final piece of advice? Embrace ‘employee engagement’.  For those employers who do, then their employees will have no desire to go and work for a competitor, leaving their employers free to focus on other areas of risk to their business. Mark Owen Solicitor August 2015 For guidance and advice on implementing a Restrictive Covenant please contact the Peninsula Advice Service on 0844 892 2772. 

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