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If the employment has ended can some contractual terms still apply?
The inclusion of a restrictive covenant and a clause protecting confidential information in the employee’s contract allows you to prevent competition from, or the exploitation of commercially sensitive information by, an ex-employee after employment ends. In the absence of such provisions an ex-employee may enter into competition with you, solicit your customers, use confidential information and poach your staff.
However, for a restrictive covenant to be enforceable the following conditions apply:
- the employer must have a legitimate business interest to protect
- the restraint must be reasonable in time and area, and it must be no wider than necessary to protect the employer’s business
Advice should be obtained because covenants need careful drafting to ensure their validity and enforceability.
Post Termination Restrictions: A Cautionary Tale
In the recent case of Re-use Collections Limited (Reuse) v Sendall & May Glass Recycling Limited. Reuse sought to enforce a number of restrictions in a relatively new contract signed by Mr Sendall. These included a 6 month non-solicitation and non-dealing clause and a 12 month non-competition clause against their former employee, Mr Sendall, who left to work for a competing business owned and operated by his children.
Through the course of the hearing it became clear that Mr Sendall had not received any new benefits as a result of the new contract and that all employees had benefitted from a pay rise and they were not being asked to sign new contracts including new restrictions.
The court held that without any consideration for the acceptance of the new contract by Mr Sendall that the restrictions were not enforceable.
It is common ground that to enforce restrictive covenants consideration must be given.
It is important to make sure that any benefits or pay increases that are given to your employees in return for variations to their contracts to include restrictive covenants are given either conditionally on their acceptance of the variation or at the very least in the general sense linked with the introduction of the new contract. If you cannot refer to specific consideration for the contract variation you may find yourself exposed and without the protection you thought you had established.