Enforcing Restricted Covenants

During employment, employees owe their employers a duty of Fidelity. This is an implied duty and does not need to be written into any employment contract. 

The duty of Fidelity is essentially an obligation on the employee stopping them from seeking to divert business away from their employer, from competing with their employer, and from making a secret profit from their work for the employer’s clients. This duty also restricts employees using their employer’s confidential information and trade secrets or know-how for their own benefit and to the detriment of the employer.

However this implied duty ceases at the end of the employee’s employment with the exception of restricting the employee from disclosing trade secrets. Not all of the employer’s confidential information falls within the category of trade secrets and therefore employers often have a specific clause in the contract of employment which expressly states that the employee is not allowed to use the employer’s confidential information for the employees benefit or for the benefit of anyone else after the termination of employment. 

Other forms of express clauses in the contract which restrict the employees activities after their employment has come to an end are often referred to as Restrictive Covenants or Post Termination Restrictions.

These Restrictions usually seek to prevent the employee from soliciting work from or dealing with the employers clients with whom the employee had been working prior to their employment coming to an end.  They can also restrict the employee from seeking to poach other employees and interfere with the employers suppliers. In some circumstances the restrictions can even restrict the employee form working for a competing business carrying out the same kind of work, within a reasonable geographical area from the place that he previously worked, for a reasonable period of time. 

Any restrictions of this nature during the employee’s employment and thereafter are subject to the public policy doctrine of restraint of trade.  This essentially states that employees should be able to retain the ability to use their skill and knowledge to earn a living.  The starting point is therefore that all of these types of restraint of trade should not be allowed. However, and importantly, this doctrine does not prevent restrictive covenants and such restrictions from being enforceable if it can be shown that the restrictions in place are no wider than reasonably necessary in order to be able to protect the employer’s legitimate business.  What amounts to an employer’s legitimate business includes their relationships with their clients, protection of their confidential information, relationships with their suppliers, and stability of their workforce.

In order to determine whether any particular restriction is within the limits of being reasonable to protect legitimate business interests a number of areas are considered by the Courts, such as the length and scope of the restriction, as well as what role the employee was engaged in when the restrictions were put in place, and whether that was reasonable at the time. 

Employers should be careful when drafting such clauses to ensure that they can be enforced. The Biscoes Employment Team can draft post-termination restrictions to protect your business and provide assistance in enforcing restrictions including injunctive relief.