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Throughout the course of an employment relationship, an employee, particularly those at a senior level, will have access to commercially sensitive information about the business they work for including client lists, prices, marketing, trade secrets and intellectual property.  Understandably, where an employee then leaves the business the employer often wants to protect this information to maintain their client relationships and the ongoing viability of their business.

The best way for a business to do this is to ensure that a valid restraint of trade clause is included in an employee’s individual employment agreement.

This clause should prohibit the employee from working directly or indirectly for a competitior company and/or setting up a rival business immediately after the end of their employment.  The clause will also usually prohibit the employee from attempting to entice other employees to join them.

Many people are misguided in their belief that restraint of trade clauses are not enforced by the Courts.  Restraints of trade are only enforceable if they are reasonable and do not go against the public interest.  This means that the Courts will not enforce any restraint of trade clause where the clause is an attempt to limit or reduce competition and/or reduce the right of an individual to work for whomever they chose.  However, the Court is likely to consider a restraint of trade clause valid and enforceable in the following circumstances:

Where there is a legitimate proprietary interest to be protected;
Where the restraint is reasonable in the circumstances; and
The employer is promptly seeking to restrain the employee after the termination of the employment.
Even if a legitimate proprietary interest exists, there are several factors the Courts consider when determining the reasonableness of the relevant clause.  These include:

The period of the restraint.  The Court has commented that a period of 12 months is at the upper limit of what is reasonable;
Geographical scope.  The restraint should not cover too great an area and should only cover the area the business operates in; and
Consideration.  Whether the employee received anything in exchange for agreeing to the restraint of trade clause.
The Court may either decline to enforce the restraint of trade clause if it is deemed unreasonable or modify it (or make some other order) under Section 8 of the Illegal Contracts Act 1970.

The best way to make sure you can protect your legitimate proprietary interests after an employee exits your business is to ensure you tailor an appropriate restraint of trade provision in the employment agreement at the start of the employment relationship.  Our team can provide advice and assistance on restraint of trade provisions, including drafting and assisting to enforce these.

Disclaimer: We remind you that while this article provides commentary on employment law topics, it should not be used as a substitute for legal or professional advice for specific situations. Please seek guidance from your employment lawyer for any questions specific to your workplace.