Post-employment restraint clauses are designed to prevent former employees from poaching clients, using company information or working for a competitor. But how do they work?
‘Where do I sign?’
How many times, when installing that brilliant new computer app, have you quickly clicked on the ‘I Agree’ icon, without reading all the Terms & Conditions?
Likewise, when signing that new employment contract, having just beaten 20 other applicants to the finish line, the last thing a new employee wants to do is wade into clauses on post-employment restraints. They just want to sign the paperwork and lock in the job.
Similarly, perhaps the last thing on an employer’s mind is highlighting what happens when the new employee leaves their employment.
It’s just words
True enough, but as with any contract, for the words to have any legal clout they should be drafted appropriately.
Employers value their business. They don’t want their interests impacted by the actions of a former employee who might:
- Use valuable client information
- Poach clients
- Commence a competing business
- Poach work colleagues
- Work for a competitor
- Disseminate confidential information
Post-employment restraint clauses are designed to achieve these outcomes, but to be enforceable they need to be fair, and they need to address the specific circumstances of the employee: their seniority, knowledge level, and client relationships. One size does not fit all. Restraints should address:
- specific activities, and
- the use of confidential information – the confidentiality clause
Various activities may be restricted:
- in particular geographical areas, and
- for various time frames
… both of which must be appropriate and reasonable, not random.
Actioning restraint provisions may seem to limit the rights of former employees to earn a living, so employers must present a sound case that:
- their viable business interests need protecting, and
- the actions of their former employee have impacted their business.
While each case is assessed on its merits, restraint provisions that are seen by the courts to be unduly onerous will not stand much chance of success.
It cuts both ways…
The provisions of an employment contract apply whether an employee has been terminated or has resigned. However, if an employer dismisses an employee in circumstances that are later found to be unwarranted – unfair dismissal – then the employer risks attracting a repudiation of contract. Such action will have invalidated the employee’s contract, including the restraint provisions.
Ex-employee actions can also be subject to scrutiny. The courts will likely take a dim view of shenanigans such as a former employee contacting a client from a previous employer with ‘I’m not allowed to approach you, but if you were to, ahem, approach me, well, I’d love to hear from you… nudge, nudge, wink, wink’.
Outsourcing and private contracting present additional complexity, as contractors can do similar work for multiple clients, with customer lists overlapping and conflicting.
Working from home raises other considerations. Has the employee, of necessity, downloaded valuable client information onto their own computer? Was this aspect even considered in the rush to have employees set up their home office?
This area of employment law, post-employment restraints, is complex. Even more reason for employers to have professionally constructed contracts, and to have sound advice in this rapidly changing world of employer/employee relationships.