October 30, 2015

What are Post Termination Restrictive Covenants?

What are Post Termination Restrictive Covenants?

 

Usually you will find post termination restrictive covenants in the employment contract and they are clauses that are used to restrict an employee and what they do in relation to the business they have just left after their termination of employment, no matter how they have left.

 

These restrictive covenants are particularly important if you have senior members of staff or staff who deal with confidential information, customers or who have a level of influence over other employees within the business.

 

But what restrictions fall under these covenants?

 

Confidentiality
This clause is used to ensure that any employee regardless of their position within the company keeps secret, important information about the business, such as details of customers or how the company prices their services.

 

Non-Compete
This clause is designed to prevent an employee from working with a business that is in direct competition or indeed setting up their own business that directly competes.

 

Non-Poaching
This clause is implemented to ensure that your ex-employee doesn’t try and approach any of your existing staff and offer them employment with them at their new company.

 

Non-Solicitation
This clause is in relation to preventing an ex-employee from approaching your customers or even any prospective customers if the purpose of approaching them is to strike up any form of business with them.

 

Non-Dealing
Lastly, this clause is also used to prevent any contact with a customer or potential customer however it differs to the non-solicitation clause in that it is designed to stop an ex-employee from dealing with your customers even if they have not approached them and the customer has made contact with them directly.

 

Within the terms of the restrictive covenant is a time span that dictates how long the ex-employee must wait before the clauses expire and we receive many enquiries as to how long these should be. Our response is always to find out more about the new employee. What is their job? What information do they have access to? Do they deal directly with clients? How senior are they? Are they instrumental in setting up a new business or are they stepping into an existing role? Etc.

 

The time span of any of the above covenants should be individual to the employee and what we have to make sure of is that the covenant is reasonable and enforceable. For example if your business is a specialist provider who employs engineers that are qualified and experienced in communications, and if they were to leave their skillset would automatically lend itself to only being able to work for a competitor, then would it be reasonable to implement a 12 month non-compete clause? As effectively what you are doing is stopping the employee the ability to earn a living for an entire year, is that reasonable and enforceable?

 

But what are your options as an employer if an ex-employee does breach the terms of the restrictive covenants? The first step would be to write to the employee setting out the terms that you believe they have breached but also the evidence that you have of said breach. The letter should also include a section whereby they sign to say they agree to abide by the restrictive covenants and they should return it by a set date.

 

If the letter is not returned then you may consider taking legal action in the form of an injunction, however this can be costly and time consuming so it is worth bearing in mind the cost of any legal action vs the actual cost to you of any breach.

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