Failure to review trade protection provisions when promoting employees leaves employers vulnerable to competitors
A recent decision by the High Court has underlined the importance of keeping restrictive covenants under regular review as employees progress through the organisation.
What has happened?
The case (refer to resources for case name) concerned an employee whose contract of employment contained post-employment restrictions which prevented them from providing competitive services to any of the company’s customers in a defined geographical region for a period of six months after termination of employment. Unusually, it also provided that he should be paid in full for the period of the covenant on condition that he complied with it.
After a long career with the business which had seen him rise in seniority, the employee left to join a competitor and the employer sought an injunction to prevent him dealing with any of its clients. The court refused because:
- The time for assessing the enforceability of the restriction was at the time they were imposed. This had been when the employee first joined the company as a trainee and at that point the extent of the restrictions was clearly unreasonable as he had no customer connections.
- This was so even though the restriction might have been enforceable when he became more senior and held significant customer relationships.
- The unusual provision for payment during the six month restricted period after termination did not help the employer’s argument that the provision was fair. The court maintained that the restriction in this way would be contrary to public policy and should not be allowed to make lawful an otherwise unlawful restriction.
How does this affect your business?
- Post-employment restrictions should only be imposed where there is a clear, legitimate interest to be protected at the time, and in a manner that is in line with and proportionate to the employee’s duties.
- As an employee is promoted and their duties change, restrictions should be reviewed to ensure that they remain appropriate and reasonable to the role being performed.
- Restrictions which cover only those customer connections with whom the employee had direct dealings are more likely to be enforceable than those covering the entirety of an employer’s customer base.
How can we help?
We can help you:
- Specify your business critical relationships, know-how and the measures required to protect them.
- Draft customised contractual protections for confidential information and effective post-termination restrictions.
When new hires join your business with a previous employer's restrictive covenants, we can also advise on their enforceability and what activities may be undertaken without risking a claim for breach.
Please contact a member of the employment team on +44 (0)20 3051 5711 or email us to find out more.
Bartholomews Agri Food Limited v Thornton
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