When accepting that dream job turns into your worst nightmare……
Post-termination restrictions: What you need to know
You’ve landed your dream new job. It’s in a sector you know well, heaps more dosh, more responsibility, nice people and great promotional opportunities.What’s more, with all your existing connections, you just know it’s going to be a piece of cake to smash your first quarter’s target and pocket that juicy bonus. You’re on cloud nine.
Three weeks into your new job an ominous looking envelope lands on your doormat. The franking mark indicates it’s from a firm of lawyers you have never dealt with before. Has a long lost distant relative died and left you their fortune…? No such luck. The letter opens with “We act for your previous employer….” Filled with dread, you skim read through the legal jargon: - “severe breaches of your contractual post-termination restrictions”, “urgent injunction”, “significant damages” “substantial legal costs” and other threatening terms jump out at you. The letter concludes bluntly with: “We recommend you seek urgent legal advice.”
Just when you’ve come to terms with the inevitable fact that your first month’s pay is now going to be spent on legal fees, your ‘phone rings. It’s your new boss. Apparently they have also received a letter from Screwum Goode & Heart Solicitors. It states that your current employment is contrary to the ongoing restrictions in your employment contract. You’re summoned to an urgent meeting first thing the next day with the HR Director, Amanda Saxx…… Your P45 follows shortly after.
So where did it all go wrong? Can a previous employer really stop you from working somewhere new?
Read on to find out…
What are post-termination restrictions?
Post-termination restrictions (sometimes known as ‘restrictive covenants’), are contractual clauses that prevent you from doing certain things in competition with your previous employer after you have left. They are usually contained in a contract of employment.
There are five key types of restrictions that you should be aware of: -
1) Confidentiality provisions impose a contractual obligation on you to keep your employer’s trade secrets and confidential information secret - even after the employment has ended. Confidential information could include customer / client lists and details of business contacts, pricing details, marketing plans, finances...etc.
2) Non-compete clauses prevent you from setting up in competition with your previous employer, or from working for an existing competitor.
3) Non-solicitation clauses prevent you from actively trying to ‘steal’ a previous employer’s customer / clients.
4) Non-dealing clauses also seek to prevent you from doing business with any of your previous employer’s customers / clients. They prevent you from ‘dealing’ with customers / clients even if they have approached you as opposed to the other way around.
5) Non-poaching clauses stop you from poaching your previous employer’s staff.
Are post-termination restrictions legally enforceable?
Post-termination restrictions will not be enforceable if the sole intention is to prevent competition. They are only legally enforceable if they are drafted in a way that goes no further than is reasonably necessary to protect the employer’s legitimate business interests.
In assessing whether a restriction is enforceable, Courts will look at the following: -
- Is the restriction reasonably limited in duration? Most restrictions apply for 6 – 12 months following termination of employment. A restriction that is not time limited is highly unlikely to be enforceable.
- Is the restriction reasonably limited to a specific geographical area? For example, a restriction preventing you from working for another competitor anywhere in the world is highly unlikely be enforceable, but a restriction preventing you from working for a competitor within a 10-mile radius of your previous employer could be.
- Does the clause go further than is necessary? For example, if your previous employer is adequately protected by non-solicitation and non-dealing clauses – is an additional non-complete clause really justified?
Ultimately, whether or not a clause will be enforceable will depend on individual circumstances, including the nature of the employer’s business, your specific role, and the legitimate business interests your employer is trying to protect.
What will happen if I breach my post-termination restrictions?
There are a number of options open to your previous employer if they believe you have breached your post-termination restrictions: -
- In the first instance, you will usually receive a scary letter threatening Court action unless you stop working for their competitor or dealing with their customers. The letter will usually request that you sign undertakings (which are essentially legal promises) confirming that you will refrain from any further breaches.
- They might also write to any new employer highlighting that you have breached your contractual post-termination restrictions and threatening an injunction.
- If you are unable to resolve the issue out of Court, your previous employer may apply to the High Court for an injunction. An injunction might stop you contacting customers or using confidential information, but could also stop you from working for any new employer. If your employer is successful in securing an injunction, it is also likely that you will be ordered to pay their legal costs, which could be substantial.
- If your previous employer has suffered a financial loss as a result of breaches of your post-termination restrictions, then they could also sue you for damages to cover their losses and costs.
In summary, it could be very expensive and stressful for you!
Post-termination restrictions are a complicated and messy area of law, and getting it wrong can be incredibly costly.
Whether you have just accepted a new job and are about to sign a new contract containing post-termination restrictions, or if you are leaving for pastures new and are concerned about existing restrictions - we would always recommend getting specialist legal advice first. You don’t want your dream new job to turn into your worst nightmare!
Peggy Barnard, Solicitor, Barnard & Co Employment Law Solution
Barnard & Co Employment Law Solutions is a boutique employment law firm based in Hemel Hempstead, Hertfordshire. Our mission is simple - to provide all our clients, whether employers or employees, with the highest quality advice and outstanding client care in a professional but friendly and supportive way. We are able to provide prompt, pragmatic and cost effective solutions to all your employment law and HR needs.