Take a look at your employees’ contracts: is there a “post-employment restraint of trade” clause included?
These seemingly inconsequential clauses are of huge importance to businesses, as they protect trade secrets, confidential information, customer connections and staff connections.
Employment contracts should always include a post-employment restraint of trade clause to restrict employees from working with clients or customers of the employer following termination of employment. These clauses are important in protecting a business, however it usually takes a breach by an employee for a company to examine its restraint clause, by which time the damage will probably already be done.
Our advice to employers is to ensure your post-employment restraint of trade clause is watertight in employee contracts. You might think, “It will never happen to us,” but it’s always best to err on the side of caution. To protect business interests, employment contracts should contain clearly defined post-employment restraints of trade clauses.
When defining your post-employment clause, keep in mind the fact that a restraint clause is void unless it is deemed reasonably necessary to protect the legitimate interests of the employer. The legitimate interests of a business will generally relate to confidential information, trade secrets and customer connections.
A restraint clause typically prevents an employee from:
- Contacting the employer’s clients for the purposes of selling goods or services or enticing the clients away from the employer
- Setting up a business competing with the employer’s business or working in a competitive business
- Poaching employees of the business
When including the clause in the employment contract, ensure that it is “reasonable”. For this reason, it is important that both employers and employees have an opportunity to negotiate the terms of a restraint.
If a case goes to court, the court will consider the “reasonableness” of the clause by asking:
- Whether the employer has a legitimate interest to protect
- Whether the restraint is a reasonable protection of that interest
When including a “post-employment restraint of trade” clause in an employment contract, consider the following:
- Is the period of restraint appropriate to the employee’s position and access to confidential information?
- Are the prohibited activities similar to the employee’s current activities?
Having an enforceable and valid restraint in employment contracts is crucial if an employer hopes to rely on it to enforce a former employee’s post-employment obligations.
If you’d like help with reviewing, drafting and advising on post-employment restraint of trade clauses in employment contracts, get in touch with the HR Dept.