• Businesses invest huge amounts of effort into winning new customers and developing and preserving customer relationships. Businesses also invest huge efforts into creating confidential information and developing trade secrets.

    Yet too often preventing those who work for you from taking those customers or those secrets with them when they leave is an afterthought. We have been informed on many occasions by employers that post termination restrictions do not work and by departing employees that they surely cannot be enforceable as they would stop them earning a living.

    Well they can work, they do work and a raft of recent cases has shown a growing enforcement friendly approach by the courts.

    In Prophet plc v Huggett 2014 the court in interpreting a post termination non-compete covenant, took the view that it was able to insert additional wording to the covenant that would otherwise have been too wide. The clause, as drafted, failed to limit its scope to the same or similar products as made by the former employer. The court interpreted the clause by adding these words. Whilst only a first level decision, this shows an increased willingness by the courts to find in favour of enforcing competition restrictions.

    In Capgemini India Private Ltd v Krishnan 2014 the High Court explained that where an employee has given an undertaking to honour any post termination restrictions, whilst this does not prevent an employee subsequently arguing the restrictions are unenforceable, it does place the onus on the employee to establish why they should not be bound by their undertaking. This makes seeking and obtaining an undertaking from a departing employee a very useful tactical step prior to any subsequent court action.

    In Merlin Financial Consultants v Cooper 2014 the court upheld a 12 month non-compete clause against a financial advisor which had been entered into a “Goodwill Agreement” alongside his employment contract. Under the agreement, the consultant had agreed in effect to sell the goodwill in his clients to the employer. The court held that this was akin to a sale agreement where more onerous restrictions are often permitted and therefore upheld this restriction.

    Whilst drafting and enforcing post termination restrictions on competition can be complex and does require detailed thought and consideration, the harm to a business of losing a key contract, a key customer or not defending its key confidential information can be far greater.

    The above cases illustrate that these clauses are important and worth the paper they are written on.

    If you invest the time and effort into drafting post termination restrictions to fit your business and the threats that it faces in a proportionate manner and also then invest the time and energy into updating those provisions as necessary, over time they can be enforceable and they can provide highly valuable protection.

    Protecting your customer’s relationships and goodwill and your confidential information and trade secrets should always be approached on multiple levels including limiting access to key data, technical safeguards, procedural safeguards, use of trademarks, patents and other intellectual property protections and contractual protection, both during and after employment against competition.

    When was the last time your business took a serious look at the protections it currently has in place?

    Are those protections up to date and will be they effective should the need arise? Can you afford for them not to be?

    Can we help?

    Take a look at our Commercial Law page for useful information, resources, guidance, details of our team and how we may be able to help you

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