Employment law update – when a director leaves

Employment Contract, KBL Solicitors

UK employment law recognises that a business is very vulnerable when a senior employee or director leaves a business for pastures new.

Departing employees are often well-placed to take advantage of confidential information, strategic plans, customer and client details or other information about their employer’s business, after the termination of their employment.

They may attempt to use this information for the benefit of their new employer, or in order to set up a rival business. This can seriously harm the former employer’s business.

It is because of this that case law has developed to enable businesses to include post termination restrictions within the contracts of employment of employees who have access to valuable business information.

These restrictions can take many forms, and can potentially prevent employees from doing the following once their employment has come to an end:-

1.     Actively seeking to do business with your clients;

2.     Dealing with clients who may make contact with the leaving employee;

3.     Working in competition with your business;

4.     Seeking to entice away other key employees of your business; or

5.     Using confidential information obtained during their employment.

Many employers do not have any post termination restrictions within their contracts of employment, meaning that any leaving employee can essentially make contact with and do business with whoever he/she wishes. This could potentially lead to big losses being incurred if a key client is lost.

Alternatively, some contracts contain post termination restrictions that are so outdated or poorly drafted that when a business seeks to rely on the clauses for protection, the Courts deem the terms unenforceable.

Case law makes it clear that a post termination restriction will only be deemed to be enforceable if it amounts to a proportionate means of achieving a legitimate aim.

Clauses that are too widely drafted, or last for an unreasonable length of time, may therefore ultimately be worthless.

We would highly recommend that businesses review their contracts of employment on a regular basis, and obtain advice as to whether the terms of any post termination restrictions remain enforceable.

For advice on employment law for your business contact us.