Post Termination Restrictive Covenants

Employment contracts often contain post-termination restrictive covenants. They are particularly important for sales staff who have access to databases of clients/prospects. They are also important for account managers and those with customer facing roles who develop a working relationship with a customer and could potentially take that customer with them if they went to work for a competitor or set up on their own, due to the relationship they have built whilst employed in such a role.

Restrictive Covenants Can Take Many Forms

  • Non-compete: a restriction for working for a competitor or setting up a business that directly competes.
  • Non-solicitation: prohibits an outgoing employee contacting and soliciting work from current customers or prospects.
  • Non-dealing: which is one step further that non-solicitation, namely it prohibits any dealings and thus prohibits the employee accepting non-solicited approaches from the customer who on its own behalf (i.e. without solicitation from the outgoing employee) who wants to follow the employee.
  • Non-poaching (of staff): prohibits an outgoing employee contacting staff to take with them to their next engagement.

The laws regulating post termination restrictive covenants are complicated. To have any hope of enforcement the restrictive covenant must be drafted in reasonable terms. Reasonable in terms of:

  • duration
  • geographical scope, and
  • drafted as narrowly as possible to protect a legitimate business aim. 

The courts consider if it is fair and reasonable from when the employee signed the contract not at date of departure of said employee. It is therefore vital that covenants are updated regularly and employees are asked to re-affirm their content regularly especially upon promotion and increasing seniority (which typically allow for longer and wider restrictions).

Disclaimer: This article does not contain a full statement of the law and it does not constitute legal advice. Please contact the Employment Law Team on 020 3743 0600 if you have any questions about the information set out above.

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