Restrictive Covenants and Post Termination Restrictions

Usually, if your former employer suspects that you are acting in breach of your restrictive covenants, it will instruct its solicitors to write a letter to you setting out the alleged breaches of the contract and requiring you to enter into undertakings (which are a form of contract) agreeing that you will cease to breach your contract.

Your employer may also ask you to draft and sign a witness statement or affidavit setting out details of the breaches of the restrictive covenants you have committed and even damages or an account of profits if it believes that you, or your new employer, have profited from the breaches of the restrictions.

If you have received a letter from your employer alleging a breach of restrictive covenants or post-termination restrictions, you need to take legal advice immediately. If you fail to reply to your former employer’s legal letter, you could well end up in court defending an injunction, which will cost you tens of thousands of pounds.

On the other hand, if you enter into the undertakings that your former employer has offered you, you may well end up losing your new job, losing out on large amounts of earnings and admit liability to pay your former employer thousands of pounds in damages.

It is important to note that if your employer has materially breached your contract of employment then any post-termination restrictions may not be enforceable as the general rule is that contractual terms adverse to the party whose contract has been breached by the other fall away.

Types of Restrictive Covenants and Post Termination Restrictions

Non-Competition

A clause in your contract preventing you from competing with your former employer once you have left is generally not enforceable in a court. This is because there is a presumption that any clause that represents a restraint of trade is not lawful in the United Kingdom. This is doubly so when your employer cannot point to any financial loss that it has or will suffer from you simply leaving and working for a rival company other than a loss due to fair competition.

Usually, in order to enforce this clause in the courts, your employer will have to show that it specifically restrained you working for precisely the company you now work for, or that you working for that specific company poses a serious risk to its legitimate business interests even if you do not approach its clients. It is rare that this can be shown.

In a case where your employer sought to enforce a non-competition clause without alleging a non-deal clause had also been breached, or that confidential information had been stolen and misused, is highly unlikely that a judge would find for your employer. This is particularly the case where a non-competition clause contains a lengthy restricted period. In our view, any non-competition clause that is longer than three-months is unlikely to be lawful, and your employer would still have to show how restraining your ability to work would protect a legitimate business interest that was not simply allowing you to compete with it.

Non-competition clauses are less likely to be enforceable the more specialised you are. For example, if you are a solicitor practising a specific area of law and leave to join a rival firm, your employer’s ability to force you not to work at all for a specific period falls away to virtually zero given there is no legitimate business interest in your employer preventing you from working for a rival other than to stifle competition. Furthermore, the more that you are able to argue that any other company is a competitor, the less chance your employer has of enforcing the contract as there is no legitimate business interest capable of being protected.

Non-Deal

A clause preventing you from dealing with specific classes of people or companies is more likely to be able to be enforced by your employer if you breach the contract. This is because a company’s clients and customers can be said to be a legitimate business interest capable of being protected, in certain circumstances. That said your employer must still be able to demonstrate that the restrictions do protect a legitimate business interest and go no further than are reasonable.

Dealing means doing business with someone or with a company.

Your employer will ordinarily seek to prevent you from dealing with its clients, its prospective clients, its suppliers, its customers or its employees. In preventing you from dealing with these classes of people and companies, your employer must define what it means by each of these entities by describing in the contract what a client is (for example). If there is no description, then it is less likely that a judge will find that your employer has a legitimate business interest capable of being protected, or that the restraints are reasonable.

In order to demonstrate a legitimate business interest, your employer usually has to establish some sort of personal relationship that you have built with its clients, customers or key staff as a result of your employment.

At a basic level, by way of an example, a supermarket chain could not prevent a cashier from dealing with its customers by serving them on the tills if that cashier went to work for a rival supermarket. This is because a personal relationship with a cashier is not the reason why people shop at rival supermarkets and its customers cannot be properly identified.

At a more advanced level, your employer cannot, for example, restrain you from dealing with its clients if its clients are in a habit of dealing with multiple similar companies at the same time for the same services, for example, in the recruitment consultancy sector where a client of the recruitment consultant advertises the same job with lots of different consultancies at the same time. A client that does this is unlikely to represent a legitimate business interest capable of being protected by a restrictive covenant not to deal with that client while working for a rival business as there is an element of competition between consultancies for each job listing.

Most employers who have been properly advised on their contracts will define clients and customers as people or companies that you have personally dealt with, or been aware of, in the 12 months prior to you leaving your job. This has been found to be a clause that is capable of being enforced by an employer as it goes no further than is necessary to protect a legitimate business interest.

A reasonable period of restriction is usually six months but can be up to a year in certain circumstances. This will mean you cannot deal with clients for the period of restriction.

A breach of a legitimate non-dealing clause is potentially a very serious matter as your employer can usually point to losses that it has suffered as a result.

Non-Poach

A non-poach clause is similar to a non-deal clause, so all the above continues to apply. In the case of a non-poach clause, the restriction also applies to attempts to poach and usually focusses on employees of your former employer, not clients or customers (although it can and does apply to clients and customers).

The intention of non-poach clauses is to prevent dealing, but also to prevent business disruption, low morale and diminution of goodwill due to a former employee using their knowledge of the business to poach key staff. This is because if a former employee attempts to poach current employees, this can lead to serious disruption in the employer’s business and even put them out of business completely if entire teams move at the same time to rival companies.

Your employer can usually point to a legitimate business interest that is capable of being protected if you poach, or attempt to poach, its key staff. The higher up in the organisation the member of staff being poached, the larger the legitimate interest. Likewise, the more staff being poached, the larger the legitimate interest. Usually, the fact that you worked at the company and knew the staff concerned means that it is legitimate for your former employer to attempt to protect the possibility of poaching via contractual clauses.

A six month period of restriction is usual and legitimate in cases of non-poach clauses and your employer will probably be able to obtain some injunctive action against you if you are in breach of such a clause.