Protect your company’s interests with post-termination restrictive covenants
How do you stop an employee that is leaving your company from approaching customers, clients, suppliers, other employees, or general competition?
The answer is through a carefully drafted post-termination restrictive covenant which prevents an employee doing this for a defined period after their employment termination.
Restrictive Covenants are a particularly helpful tool for senior employees who have been employed by the business for a long period of time and who will have been party to highly confidential information about the business.
The clauses, usually contained within a robust contract of employment, can help to protect the employer’s confidential information, customer connections, its goodwill and the stability of its workforce.
Harriet Gardner, associate and Team Leader in Employment Law & HR Services at Wake Smith looks at the issue.
This article covers:
- Why impose post-termination restrictive covenants?
- Types of restrictive covenants
- Duration of restrictive covenants
- Legal position
- Updating restrictive covenants
- Your next move?
Why impose post-termination restrictive covenants?
Departing employees can take advantage of confidential information, strategic plans, customer and client detail or other information about their employer’s business after termination of their employment.
They can use this information for the benefit of their new employer, or in order to set up a rival business – both can seriously harm the former employer’s business.
Although employees must observe certain terms that form every contract of employment, such as the implied duty of fidelity, these are of a limited nature and do not generally extend to the period after termination of the contract.
However, express restrictions can be specifically designed to reflect the parties’ circumstances and business interests. If properly drafted and reasonable, they can limit the employee’s conduct and prevent them from damaging the former employer’s business.
This might also deter employee’s from joining competitors and deter potential new employers, who face the risk that the restrictions will be enforced by the courts, leaving themselves vulnerable to certain tortuous claims, such as inducing a breach of contract, or unlawful means conspiracy.
Types of restrictive covenants
Non-solicitation clauses: Solicitation in this context usually refers to an ex-employee’s positive act of contacting a customer or client of the former employer or making an initial approach, with a view to obtaining their business.
It is generally acceptable for an employee to inform clients and customers they are leaving. However, there is a fine line between acceptable communication and unlawful solicitation. This boundary can be clearly defined in accordance with the employer’s business needs and should be set out in the employment contract.
Generally, the covenant needs to be tightly drafted so that it is only as wide as necessary to protect the legitimate interest. This can include restricting the clause to customers with whom the employee had contact during a specified period before termination. Other relevant factors might include; the employees level or seniority, the extent of their role in securing new business, loyalty of customers in the relevant market and the length of similar restrictions in the employment contracts of competitors.
Non-dealing covenants: This restriction can be extended to cover not only enticement or interference, but also the provision of services, where no active steps are required: the customer could approach the individual.
Enforcement may be more likely in these circumstances where the employer can establish a substantial personal connection between the employee and the relevant customers/clients, and where the business environment is such that overt solicitation is not necessary for the employer to be exposed to significant loss of business.
Non-poaching and non-employment covenants: These clauses prevent a former employee from poaching other employees to leave with them.
They are often needed to protect the employer’s legitimate interest of maintaining stability of its workforce.
When drafting any non-poaching covenant, an employer must consider how long after termination the outgoing employee’s influence over other employees will continue, and the scope of the classes of employees over whom such influence will exist.
An employer is often tempted to draft restrictions so that no staff can be poached, regardless of level. This is not likely to be enforceable.
Non-competition: A non-compete restriction prevents an employee joining a rival employer for a defined period after termination and is one of the most important covenants to employers.
This is likely to be enforced in certain circumstances where:
- It may not be possible to give the legitimate interest sufficient protection through the implied and express confidentiality terms.
- The individual’s influence over customers or suppliers may be so great that the only effective protection is to ensure they are not engaged in a competing business in any way.
Duration of Restrictive Covenants
With the exception of restraints on using or disclosing confidential information, any post-termination restrictive covenants that restrain a former employee’s freedom to trade, must be for a limited time.
When deciding the appropriate period, it is necessary to consider how long it will be before competitive activities by the individual will represent less than a material threat to the employer’s legitimate interest.
This will vary from case to case and should be carefully considered each time restrictive covenants are drafted in an employee’s contract.
Updating restrictive covenants
Employees will generally be bound by the terms of any restrictive covenants, or confidentiality provisions, included in their contract at the start of employment, assuming that the relevant provisions are enforceable.
Where employees are promoted, or transferred into new internal roles, employers should consider whether any contractual restrictive covenants remain appropriate and, if so, whether they are still construed in the correct way for the employee’s new role.
For new employees and current employees who are changing roles, employers should ensure they draw the employee’s attention to new or continuing restrictions.
Breach of Restrictions
If an employer chooses to pursue an ex-employee for a breach of their post-termination restrictive covenants, the most common routes are:
- An injunction – this is an order requiring the ex-employee not to do something, such as working in competition with their previous employer, or soliciting customers or staff.
- Damages – the employer could pursue a claim for damages to “put them in the same position as they would have been in had the contract been complied with”. For example, this could be financial loss suffered as a result of the breach such as an account of the new employer’s profits. It can often be difficult to calculate damages in these types of cases.
Employers should be aware that the cost of pursuing an ex-employee for breach of post-termination restrictions can be extremely expensive, upwards of £50,000 in some circumstances.
However, in the case of a senior employee who is subject to a whole array of confidential data, pursual for breach of these restrictions will not only benefit the employer in terms of any financial loss suffered, but will also set an example to future departing employees of the employer’s stance regarding this.
Your next move
For further advice on restrictive covenants call Harriet Gardner at Wake Smith Solicitors on 0114 223 2726 or email [email protected]
For further details on employment law services click here
Published 29/09/25
About the author
Solicitor in Employment Law and HR Services
