Do your employees’ post-termination restrictions do what you think they do?!
Tuesday, 27 March 2012
An ex-employee who has knowledge of customers, clients, suppliers and strategic information may be an attractive asset to a competitor. Employers are becoming increasingly aware of the need for effective restraints on employees
after they have ceased active employment, and are increasingly prepared to take action to enforce such restraints. The most common remedies sought are injunctions, and delivery up and/or destruction of confidential information.
There have been two cases recently reported whereby employers have sought to enforce restrictive covenants but failed to do so because the clauses in the relevant contracts of employment were not properly drafted to ensure that the employer's business in each
case was protected.
In the first case of Towry EJ Limited v Bennett and others, the Court considered whether former employees had breached a non-solicitation clause, and whether they had been induced to do so, when several of their former clients followed them with their business.
It claimed that the ex-employees' conduct amounted to breaches of restrictive covenants in their employment contracts that prohibited the soliciting of clients for 12 months and misuse of confidential information. Towry had claimed the total loss it suffered
was almost £6m. The ex-employees successfully argued that the clients had moved of their own volition and, since there was no restriction in their contracts on ‘dealing' with clients and no evidence of solicitation, there was no breach of the restrictive covenants.
In the second case of Caterpillar Logistics Services (UK) Ltd v Huesca de Crean it was held that an employee could not be prevented from taking up employment with a client of her former employer where there was no restrictive covenant in her contract of employment
prohibiting her working for a third party. Although the ex-employee had entered into a confidentiality agreement, there was no specific restrictive covenant in the contract which prevented her from taking up any employment once the contract had ended. Furthermore,
the employer had failed to establish that there had been actual wrongdoing on the part of the ex-employee and/or that any confidential information had been leaked.
Alison Loveday of Berg commented: "These cases highlight the importance of evidence in cases of alleged breach of restrictive covenants and also to ensure that restrictive covenants are drafted in a way to ensure that your business is protected so far as possible.
Legal action in this area can involve a substantial amount of time and money so it is important for employers to be clear of their commercial objectives from the outset. Points to be addressed will include:
1. Taking legal advice at the outset in respect of the enforceability of your employees' existing post termination restrictions. The extent of restrictions should be relative to an employee's position within the business. As more senior employees will be
in contact with more sensitive information, restrictions placed upon them may be justified as being more onerous. This may also apply to employees engaged in sales who have regular contact with clients and/or customers. A "one-size fits all" policy risks the
clause being unenforceable. It is also important to review restrictions as individual's jobs and responsibilities change over time.
2. Identify the threat and act quickly. You should gather evidence in support of any belief that a former employee is undertaking competitive activity in breach of their ongoing obligations, and of the damage that this has caused or will cause to your business.
Activities prior to termination will be relevant.
3. Consider alternatives to litigation such as requesting that an ex-employee signs up to undertakings confirming that he/she will not breach their restrictions. This was considered a relevant factor in the Caterpillar case where the Defendant had already
given voluntary undertakings that she would not breach the terms of the relevant confidentiality agreement.
4. Having decided what, if any, action is to be taken against the former employee (and any other third parties), you should also consider what steps need to be taken to reassure the remaining workforce and maintain relations with clients/customers and suppliers."
If you wish to discuss your business' requirements in terms of restrictive covenants and/or taking action to enforce the same, please contact a member of the Employment Department.
To discuss how we can provide further advice in connection with these issues, please contact Alison Loveday, Partner and Head of our Employment team, by email to
email@example.com or alternatively you can call Alison on 0161 833 9211.
The information and opinions contained in this article are not intended to be comprehensive or to provide legal advice. No responsibility for article's accuracy or correctness is assumed by Berg or any of its partners or employees.
Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of the contents of this article.