Update on post-termination restrictions: good news for recruiters and employers
One of the questions frequently faced by recruiters is how to deal with a prospective employee who is bound by post-termination restrictions with his previous employer.
These restrictions, also known as restrictive covenants, may prevent the employee from working for a competitor, soliciting former contacts or colleagues, or even having any dealings at all with them.
Recruitment agencies can be affected by restrictive covenants either when attempting to fill a role for a client, or when recruiting for their own business.
A recent case sheds further light on the enforceability of post-termination restrictions, giving greater lee-way to employees and candidates, and less protection for employers.
The legal position is that a restrictive covenant must go no more than is reasonably necessary to protect the legitimate business interests of the company. If the restriction does not meet this test, it will be unenforceable as a restraint of trade.
The difficulty with the legal test is that, as you might notice, it is open to considerable interpretation and will always be decided on the facts of the specific case, which leaves this area fraught with uncertainty for both employers and employees alike.
In the case of Bartholomews Agri Food v Thornton, the High Court considered a post-termination restriction which prevented the employee from working for a competitor to supply goods or services to the company’s customers, for a period of 6 months. Unusually, the contract provided that it would pay the employee his full salary during the period of the restriction.
The Court concluded the restriction was unenforceable.
First, the restriction had been placed in the contract since the employee started with the company as a trainee in 1997. Although by the time he left the company, his seniority meant that some manner of restriction would have been understandable, it is key to consider the factual position at the time the contract was entered into.
Secondly, even taking into account the employee’s position, the term was drafted too widely. The employee came into contact with approximately 2% of the company’s customers: to prevent him from having dealings with the remaining 98% was clearly unfair.
Finally, the Court concluded that the fact that the employee would be paid for abiding by the restriction made no difference because, as a matter of public policy, employers should not be able to “purchase” a restraint of trade.
This case demonstrates how important it is to draft restrictive covenants very carefully.
Future employers and recruiters are often put off a candidate when they discover she is bound by post-termination restrictions; however, many such restrictions will be unenforceable.
The Government is so concerned about these type of restrictions that BIS carried out a survey last month on whether non-compete clauses are stifling small businesses and entrepreneurship. The results of the survey are going to feed into a National Innovation Plan which will be published later this year.