Understanding Post Termination Restrictions

With this in mind, we’ll delve into everything you need to know about post termination restrictions, including when they appear, whether they’re enforceable, and what to do if they’re breached. Read on to find out more.

What are Post Termination Restrictions?

Post termination restrictions are a series of limitations that prevent former employees from taking action that could have a detrimental effect on the business they have just left. These limitations can be anything from who an individual can work for next, what clients they can seek work from, where their job is located, or the disclosure of trade secrets. 

These restrictive covenants are usually found in a worker’s employment contract, or it can form part of a settlement agreement. Although their purpose is to protect businesses, it’s important that they’re not too stringent, restricting former employees from utilising their skills elsewhere. Given this potential conflict of competing interests, disagreements over post termination restrictions are typically handled on a case-by-case basis. 

5 Types of Post Termination Restrictions

There are several different types of post termination restrictions, ranging from non-compete and non-solicitation clauses, to preventing former employees from disclosing potentially confidential information. It’s important for all parties to thoroughly understand the ramifications of these restrictive covenants and seek legal advice before carrying out any activities that could breach the rules. 

The main types of post termination restrictions are:

• Non-Solicitation: Preventing employees from approaching their former employer’s clients or customers with a view to doing business with them. 
• Non-Dealing: Stopping individuals from accepting any work from clients or customers of their previous business, even if the clients made the first move. 
• Non-Poaching: Blocking former workers from encouraging other key members of staff from leaving their previous employer with them. 
• Non-Compete: Perhaps the most difficult to enforce, they’re designed to stop employees from working for competitors or setting up their own business in direct competition. 
• Confidentiality Clauses: Usually reserved in cases of senior executive severance, they prevent an individual from disclosing confidential information or trade secrets.  

Post termination restrictions can vary in duration, with some lasting for up to 12 months.

Are Post Termination Restrictions Enforceable?

Post termination restrictions are enforceable by law, but only if it can be proved that their sole purpose is to protect the interests of the business. The burden of proof for this lies with the employer. Restrictive covenants cannot be enforced if they are not found to be reasonable — for example if they’re too wide-reaching or generic. 

Determining whether restrictive covenants are enforceable can depend on a number of factors, such as: 

Legitimate Interest

An employer is required to define a legitimate business interest in having the restrictions in place. Examples of this include if the worker is in possession of trade secrets or confidential information, if they have made specific trade connections, or if the covenants relate directly to the skills of the company’s workforce. 

It’s not possible for a business to simply want to prevent former employers from working for a competitor. Instead, it must prove that there will be a tangible threat to its operations if the event comes to pass.

Reasonableness 

Employers must ensure that the limitations do not go further than necessary to protect the legitimate interests of the business, and are instead reasonable for both parties. This does not mean that the restrictions need to give equal benefits to employers and employees, however. 

Assessing how reasonable a set of post termination restrictions are will involve looking at the following:

• Are they clearly defined or is there some ambiguity?
• Do the rules go further than necessary to prevent harm to the business?
• Will the employee be subjected to them for longer than is necessary?
• Is the stipulated geographical restriction suitable?

It’s important to note that the reasonableness of restrictive covenants is assessed as of the time they were initially agreed by both parties, either at the beginning of employment or during a settlement agreement. There are no provisions for hindsight.

Additionally, the courts can decide to remove sections of a restriction that would’ve otherwise made them unenforceable. However, a court is not able to rewrite entire covenants to make them enforceable. 

Employee Seniority

Because senior executives often garner a great deal of respect amongst clients and their own peers, businesses can argue that there is a greater need to have post termination restrictions in place. This is because the worker in question could have more influence over fellow employees or customers, thereby making them more likely to follow the departing employee to their new venture.

Senior members of staff are also more likely to hold commercially-sensitive information about the business they worked for, which could prove damage for the business if anything was leaked.  

Geographical Extent

An employer can only place a geographical restriction if it is completely necessary in protecting their business interests. The covenant cannot be overly vague or so far reaching that it seriously impedes the employee’s chances of securing a new position. 

Duration

The final thing a business must prove is that it’s only restricting employees for as long as necessary. Although this will vary from case to case, covenants will typically not last for longer than 12 months.

What Happens if Post Termination Restrictions are Breached?

In cases where a former employee breaches post termination restrictions, businesses can first of all try to settle the matter via alternative dispute resolution methods such as mediation. Should this prove unsuccessful, the next step would be to approach the courts and ask them to decide whether the covenants are appropriate.  

When seeking alternatives to litigation, parties can first of all sit with a mediator and attempt to come to a non-legally binding resolution. Another option is arbitration, where the final outcome would be enforceable by law.

If taking legal action is the only option, businesses can seek an injunction to prevent the employee from taking up their new position or starting their own company. The court will review the post termination restrictions and make a judgement on whether the covenants can be enforced. 

Once the final resolution has been made, the losing party may also find themselves liable for their opponent’s legal costs. Additionally, compensation may be awarded if the victor can prove they incurred a financial loss as a result of the breach. 

When Should Legal Advice be Sought?

Given that litigation to resolve disputes can be extremely costly and time-consuming, it’s important to seek specialist legal advice at the earliest possible opportunity. Businesses, for example, should consult a solicitor when drafting their policies and procedures (employment contracts, settlement agreements, etc.) 

Employees, on the other hand, may decide to take legal advice before accepting a new position if they believe the covenants requested by a potential employer to be too egregious. They should also speak to a solicitor before taking any actions that could see them breach their post termination restrictions (such as setting up their own business). This will enable them to make more informed decisions about what their next move should be. 

Proposed Changes to Post Termination Restrictions

As of the time of writing (February 2024), the government is considering limiting the duration of restrictive covenants to just three months. This may be something employers wish to bear in mind when drafting new policies.

Because post termination restrictions are highly-specialised, there is no one-size-fits all solution. Whether or not the restrictive covenants are enforceable depends on the unique circumstances involved in each case, so it’s important to speak to a law firm that takes a personal approach to legal advice.

The employment law team at Thursfields effortlessly tailors their service to suit the requirements of our clients. If you’re a business, we’ll help you ensure the restrictive covenants you impose are clear and fit for purpose. For individuals, we’ll take the time to understand your unique circumstances and goals, before recommending a bespoke solution to meet your requirements. 

Should the situation require legal action, we’ll support you at every stage of the process. The involvement of our team has often proved crucial in securing a positive result for our clients, so you can be confident you’re in safe hands.
For more information about how Thursfields can help you navigate through post termination restrictions, contact our team today.