Recent weeks have seen an increase in enquiries for employment advice on post-termination restrictions, in particular restrictive covenants, which is a sign of commercial markets getting busier and key members of staff on the move.
It’s a good time, then, for some tips on enforceability, as detailed here by Jacksons Law Firm head of employment Paul Clark…
Get it signed
Particularly important where restrictions are introduced when a contract is varied, the test is whether there is an ‘unequivocal act implying acceptance’ of the new terms based on the employee’s conduct rather than their intention.
In one case, where a purported variation to include restrictive covenants did not require a response, the employee (who did nothing) was found not to have accepted the variation leaving the restrictions unenforceable.
All contracts should be signed as proof of acceptance but this is crucial where they include restrictive covenants.
Consideration
Along with consent, consideration is a pre-requisite for enforceability. But what is ‘good consideration’?
Employers should be wary of relying on pay rises which are not specific to an individual or failing to make clear that an increase is conditional on agreement to the new terms.
Where post-termination restrictions are included in a settlement agreement, it makes sense to provide separate consideration to the termination payment.
Don’t be greedy
Restrictive covenants are only enforceable where they are no more restrictive than necessary to protect a legitimate interest (commonly client relationships or confidential information).
Resist the temptation to make the restrictive period overlong and focus on the level of protection which addresses the interest – an enforceable non-dealing clause for 6 or possibly 12 months provides infinitely better protection than a 12-month non-compete clause which gets struck out as a restraint of trade.
Review and update
The reasonableness of restrictive covenants is judged at the point they were entered into meaning a restriction which has not been updated for several years runs the risk of no longer protecting the legitimate interest in question.
This is also a reason to avoid including restrictions in every employee’s contract as junior members of staff are less likely to pose a threat to legitimate interests if they leave, undermining the enforceability of restrictions in the contracts where you need them most.
For advice on introducing, updating and enforcing post-termination restrictions, or challenging the enforceability of restrictive covenants, please contact Paul Clark, head of employment at Jacksons Law Firm, on 0191 206 9262 or via [email protected].