One of the questions that I am often asked by employees who are leaving their job (whether via a settlement agreement or not), is whether the restrictions in their employment contract or settlement agreement can be enforced after their employment ends. The Government has recently announced plans to restrict post employment non-compete clauses to a maximum period of 3 months, which may clarify this question.
Post employment non-compete clauses (often called “post termination restrictions”) are commonly used in employment contracts and employment settlement agreements to prevent an employee from leaving a business and immediately setting up in competition. They are particularly common in the employment contracts or settlement agreements of employees who work in sales or other roles where they may have access to confidential information such as details of business Clients, pricing structures, etc. They limit the ability of the employee to leave their employment and either set up their own business in competition or move to work for a competitor. They are often restricted in duration and sometimes also geographical scope. In the past, the Courts have upheld post termination restrictions of various time periods up to 12 months.
The Government plan is that non-compete clauses would be limited to a maximum of 3 months which would commence when the employment contract ended (i.e. the date of termination of employment) and expire three months later. The Government has not suggested that they plan to limit other types of post termination restrictions (for example, soliciting former colleagues to leave the business or confidentiality).
There has been no indication of when the legislation would be introduced, and this cannot happen until there is sufficient space in the parliamentary timetable for the draft legislation to be debated. It is difficult to know whether this means there is a chance that the legislation will never appear and the idea will be quietly dropped at some future point. I doubt that the proposal will receive much support from big business.
I expect that businesses will look at other options to protect themselves against the risk caused by an employee leaving with sensitive commercial information. These could include the extension of the notice period in the standard employment contracts, which would give the business the option to move the departing employee into a less sensitive role for the notice period before exit. Alternatively, the business could include a “garden leave” clause in the employment contract, which would allow the employer to make the employee spend a period of time at home (on full pay) and away from the business before leaving. These clauses could be coupled with the 3 months restriction; therefore, extending the notice period could mean that the business would have a significant period of protection from the risk created by the employee leaving. I also expect the employers to review their settlement agreements’ terms to ensure that these offer them maximum protection.
It can be difficult to navigate the uncertainty around post termination restriction, and I am happy to advise businesses and employees on the best solutions to reduce their risk of being drawn into prolonged and expensive litigation, which sometimes results in these disputes.
