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31 Jul

Post employment - restrictive covenants in employment contracts
These are often found in written employment contracts. The employer inserts them to try to make provision in advance to limit the damage which might otherwise be caused by the employee in the future after the employment relationship ends

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Post employment - restrictive covenants in employment contracts
These are often found in written employment contracts. The employer inserts them to try to make provision in advance to limit the damage which might otherwise be caused by the employee in the future after the employment relationship ends. In some businesses the employer’s goodwill is tied up with the employee’s relationships with the employer’s customers, so the employer is vulnerable to a departing employee taking the employer’s business with him. In other cases employees have access to commercially valuable confidential information belonging to the employer such as pricing and marketing structures and trade secrets, and the employer wants to protect himself against such information being used by his competitors.

Post-employment restrictive covenants in employment contracts are designed to try to limit this type of damage to an employer’s business caused by departing employees. Under such covenants the employee typically agrees in writing that after his employment has ended, he will not work for a competing business for a specified period within a specified area.

These clauses have to be drafted very carefully if they are to be effective. They are said to be “in restraint of trade” so courts will not uphold them unless they are both clear and reasonable. Such clauses are often challenged by outgoing employees and the usual grounds for such challenge are that the restrictions are invalid because they are unnecessarily long in their duration, or unreasonably wide geographically or as regards the type of work. They can also be challenged on the basis that the employee should not be bound by contractual restrictions because the employer has already himself breached the contract.

The person drafting such a clause for an employer needs to have some knowledge of the working of the employer’s business and market so that the clause wording is drafted wide enough to confer the necessary protection, but not so wide that the whole restriction is liable to be invalid legally.

A recent case in the Court of Appeal, Prophet plc v Huggett illustrates this. Prophet had employed Huggett under an employment contract which purported to prevent him, for a period of 12 months, from working for any business which provided computer software to the fresh produce industry. However, the clause was worded so that the restriction would only operate to prevent him from working 'in any area and in connection with any products in which he was involved whilst employed' at Prophet. In 2013, H was headhunted for a rival firm and P plc brought injunction proceedings against him to prevent him from working for the competitor until the expiry of 12 months.

The Court of Appeal overturned a High Court judge's decision to add words to the restrictive covenant which, on a literal interpretation, had originally offered no protection to the employer. Although the clause had been professionally drafted, the draftsman had not thought through the concept underlying his chosen words. In such circumstances, the judge was not entitled to recast the parties' bargain.

If you are an employer wishing to draft an employment contract to protect yourself or an employee seeking to challenge or query the validity of such a restriction please contact 12 College Place Southampton as our employment team can provide specialist advice and appropriate help in court on this subject.

Jeremy Burns

For more information on Employment Law, click here.