Background
The relevant English law relating to post-termination of employment restrictions (PTRs) arises from case law around the doctrine of restraint of trade, rather than statute.
The basic starting point is that PTRs are void on the basis that they amount to unlawful restraints on trade. English courts will however enforce a restriction to the extent that it is no more restrictive than is reasonably necessary to protect the employer’s legitimate business interests (such as protection of trade secrets and confidential information). English courts’ assessment will be based on the circumstances that were in existence when the PTR was entered into, rather than the date of attempted enforcement.
The enforceability of any particular restriction is ultimately at the discretion of the court, and as a general rule the more onerous the restriction on the employee, the less likely it is to be enforceable.
In practice, to maximise prospects for successful enforcement, an employer should consider carefully in the context of its business, and the role / likely role of the particular employee, the type and duration of restriction necessary to protect its key interests (i.e., what is the shortest period of time that it really needs to sure up its relationships with customers, clients, suppliers and employees etc. following the employee’s departure). If an employer can produce evidence to show that it has carefully considered these issues it will be in a stronger position to persuade a court to enforce. A corollary of this is employers should not generally impose the same PTRs on all employees regardless of role and seniority.
In contrast to some European countries, there is no requirement under English law to continue paying the employee during the period of operation of the PTR.
Other points to note
PTRs that purport to restrict employees for 12 months following the termination of their employment are only likely to be enforceable under English law in respect of the most senior categories of employees who have access to significant amounts of confidential information and whose competitive activity post-termination could significantly damage the employer. PTRs for longer than 12 months are enforced only very rarely. For less senior employees, restrictions of between 3 and 4 months are more typical but as noted above, duration in each case should be based on an assessment of the minimum period needed to protect key interests.
Whenever an employee’s role changes significantly or an employee is promoted, the PTRs that apply to that employee should be revisited to ensure that they are suitable to the new role. If new PTRs are to be entered into in connection with a promotion (or otherwise), fresh consideration will be needed, and in the context of a promotion this fresh consideration often takes the form of an increased salary.
Requiring the employee to serve a period of garden leave during their notice period is often a more effective means of ensuring a period of non-competition. Garden leave is the term used to describe the situation when, following service of notice of termination, the employer exercises a contractual right to require the employee to remain away from the office and perform no duties for some or all of the notice period. However, the employee remains in employment during the period and continues to be paid. Due to the fact that the employee remains in employment it is easier to obtain an injunction against an employee to enforce a period of garden leave than it is to obtain an injunction enforcing a PTR (see below).
Enforcement
Under English law, enforcement of PTRs is uncertain and expensive. For this reason, more often than not, when an employee is found or suspected or is threatening to be acting in breach, a compromise is reached whereby the employee gives undertakings to comply with the PTRs (or a more limited set of PTRs).
If more formal action is needed, this typically takes the form of an application to the court for an interim injunction prohibiting the employee from committing or continuing with the breach until a full trial of the matter can be held. In practice, if an interim injunction is granted this is often the end of the matter as the employer can then negotiate a settlement from a position of strength.
Under English law the test for the award of an interim injunction is that the court must be satisfied that there is a serious question to be tried or a real prospect of success and that the balance of convenience favours the granting of an injunction. If an injunction is granted, failure to comply with it is a criminal offence. An application for an interim injunction is often accompanied by a damages claim. However, in these circumstances damages can often be difficult to quantify and therefore it is often preferable to obtain an injunction to prevent the breach in the first place.
