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NATASHA SMITH LOOKS AT ptrS IN EMPLOYMENT CONTRACTS

By Natasha Smith, Senior Associate

Post Termination Restrictions (PTRs) are often included in employment contracts to protect the employer’s business by restricting the activities of a former employee. They are relatively common in most employment contracts. There are various types of PTR but all types must be limited by a reasonable timescale post-termination and geographically to give the restriction the best chance of enforceability:

  1. Non compete - preventing an employee from joining a competitor or from setting up their own business in competition with their former employer.
  2. Non solicitation - preventing a former employee from actively contacting customers or clients with a view to taking them away from their former employer. 
  3. Non dealing – preventing a former employee from providing services or goods to their former employer’s customers, without any active steps being taken to contact them. 
  4. Non poaching preventing a former employee from employing other members of staff when they leave.

Sometimes employers can attempt to impose unreasonable and/or unfair restrictions on employees. Any contractual term restricting an employee’s activities after termination is void for being in restraint of trade and contrary to public policy, unless the employer can show that:

  • It has a legitimate proprietary interest that it is appropriate to protect; and
  • The protection sought is no more than is reasonable having regard to the interests of the parties and the public.

The following should be kept in mind when drafting a PTR:

  • The onus is on the party seeking to rely on the PTR to show that the PTR is reasonable and ought to be enforceable.
  • Any ambiguity or uncertainty in the language of the PTR may give rise to a challenge that the PTR should be construed against the party which drafted the PTR.
  • When drafting a PTR, attention should be paid to the specific position, seniority and influence of the employee, as well as the connections and the shelf-life of the confidential information and knowledge retained by the employee.
  • Consideration should be given to reducing the restrictive period of the PTR with any period of garden leave served.

In December 2020, the government launched its consultation on measures to reform post-termination non-compete clauses in contracts of employment

The two main options set out in the consultation paper were as follows:

  • Option 1 – making non-compete clauses in employment contracts permissible only where the employer provides compensation (most likely a percentage of basic salary) for the period during which the individual will be prohibited from working for a competitor or starting their own competing business. This is not a novel approach to PTRs and is akin to the stance taken in France, Germany and Italy, so despite Brexit, we may in future adopt a similar legal approach to our European cousins with regards to the enforceability of PTRs.
  • Option 2 – making all non-compete clauses in contracts of employment void and unenforceable.

The consultation closed on 26 February 2021, but there has been little by way of update on when the response will be published.

In the meantime, many employers are finding recruitment and retention challenging at the moment. The number of job vacancies in the UK is at an all-time high and this means that, now more than ever, employers will be desperate to retain their best employees and businesses will therefore have a fight on their hands to attract new talent.

The reality is that, however well they are treated, employees are entitled to and will leave from time to time. Whilst employers can’t stop them doing so, they can take steps to limit the damage they might do to their business if they do leave which, by extension, could be a factor which may encourage an employee to stay for a time. To achieve that, employers would be wise to consider the following, when aiming to maintain and strengthen their workforce:

  • If seeking to recruit new people, employers should be mindful of the obligations the target employee will have to their current employer. If the target employee has a short notice period and no restrictive covenants, recruiting may be mercifully simple, at least from a legal standpoint.
  • However, if they are subject to a long notice period, detailed restrictions and the employer does not want to let them go, you may be sucked into an expensive fight for which you, as the would-be employer, could be liable if you have actively encouraged someone to disregard their current contractual obligations, or even if you have just turned ‘a blind eye’ to their existence.  Therefore, when recruiting, it is wise to ask an employee about the details of their contract, so that you can form a considered view about the risks associated with recruiting them.

Importance of seeking legal advice in relation to PTRs

For employees: Legal advice over the enforceability and scope of the PTRs should be sought prior to joining a competitor. In case of a breach of an enforceable PTR, an employee may be liable to a claim of breach of contract and in some cases may even be restrained by a court injunction from joining a new employer.

For new employers: Legal advice over the enforceability and scope of an employee’s PTRs should be sought prior to offering the employee a job. An ex-employer could potentially bring a claim against a new employer in connection with their involvement in wrongful conduct by the former employee. If the legal advice obtained is to the effect that the PTRs are likely to be enforceable, the new employer should proceed with caution.

For ex employers: An ex-employer should seek robust legal advice on enforceability of the PTRs before taking any action. Where it suspects that a departed employee has acted in breach of PTRs, it should seek further legal advice to understand whether the employee’s conduct is, in fact, in breach of the PTRs and, if so, whether to commence legal proceedings. Where an ex-employer has commenced legal action and is unsuccessful in seeking the remedies it has sought, the Court will likely order the ex-employer to bear the ex-employee’s and/or the new employer’s legal costs in defending the action.

If you would like to discuss the potential legal implications for employers who are dealing with post termination restrictions or any other employment matter, please do not hesitate to contact Joseph Oates on email: jmo@cooperburnett.com or Natasha Smith on email: nes@cooperburnett.com or tel: 01892 515022.

This blog is not intended as legal advice that can be relied upon and CooperBurnett LLP does not accept any responsibility for the accuracy of its contents.

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July 8, 2022

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