The Dangers of Imposing Blanket Post-Termination Restrictions Across Workforce

I frequently have clients who want me to put post-termination restrictive covenants into the contracts of employment for all their staff, irrespective of their seniority.  I always advise caution in this regard as the enforceability (or otherwise) of a restrictive covenant is based upon whether it was reasonable at the date upon which it was entered into and what is reasonable for one class of employee may not be reasonable for another.

The problems arise when seeking to enforce such covenants against individuals who have been promoted to more senior positions without entering into new contracts with the restrictive covenants being re-stated.  In many cases, when an individual is promoted within an organisation, he or she is not issued with a new contract of employment.  Instead, any changes are contained in a side letter or addendum to the original contract.  The problem of what happens in cases such as this, where restrictive covenants have been contained in the original contract prior to promotion is illustrated in a recent High Court case.

In this case, on commencement of employment, the employee was in a fairly junior position.  He had a 1 month notice period but there was a 12 month non-compete clause in his contract of employment.  The restrictive covenant clearly went beyond what was reasonable to protect the employer’s legitimate business interests given this individual’s lowly position within the company.  However, several  years later he was promoted.  Instead of issuing him with a new contract of employment, the employer simply notified him of his new position, salary and notice period (now 3 months) and confirmed that all the other terms of his previous contract of employment were remaining as before (including the restrictive covenant).

Some time later the employee resigned saying that he was going to work for a competitor.  The employer stated that if he did so he would be acting in breach of the restrictive covenant.  The employer therefore sought an injunction preventing him from doing so.  The employee counter-claimed wrongful dismissal.  The court refused the injunction on the basis that, at the date that the restrictive covenant was imposed on the employee (back in 2000 when he was in the more junior position) it was too restrictive and hence unenforceable.  The fact that it may not be too restrictive after his promotion was not relevant as the reasonableness or otherwise of the clause must be determined as at the date it was imposed.  Had the employer wished to enforce the restriction after the individual’s promotion, it needed to ensure that he entered into that restriction again.  It was not sufficient for the employer to state that the earlier restriction was still in force on the basis that it was clearly never in force as it was unenforceable!

Employers need to be very careful, therefore, to avoid issuing boilerplate contracts of employment across the workforce purely because it is simpler to do so than to tailor contracts to individual people.  However, for those who have done so, if those contracts contain post-termination restrictive covenants, make sure that new contracts (or at least new restrictive covenants) are entered into if an employee is promoted to a more senior position where such covenants are more likely to be significant to the employer.

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About Belinda Lester
I am the managing director and founder of Lionshead Law a specialist employment law and HR consultancy company.

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