UK: Don’t Overreach When Restricting Where Former Employees Work

 

By Simon McMenemy May 16, 2019
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​United Kingdom (U.K.) employers can prevent former employees from working for competitors for limited periods, so long as the former workers were high-ranking and the clauses restricting work aren't too broad. But all too often in the pressure-cooker environment of talent acquisition, employers don't spend enough time reviewing the restrictions, which then wind up unenforceable.

At the start of the employment relationship, an employer should decide what, if any, post-termination restrictions it will need if the individual begins working elsewhere.

Pending Supreme Court Case

The U.K. Supreme Court recently considered the wording of post-termination restrictive covenants in employment contracts in the case of Tillman v. Egon Zehnder. In this case, the employee left a recruitment firm to work for a competitor. The recruitment firm initially persuaded a court to bar the employee from working for the rival, but the U.K. Court of Appeal reversed.

The restrictive covenant barred the employee from "directly or indirectly engag[ing] or be[ing] concerned or interested in any business carried on in competition with any of the businesses of the company." The court decided that the phrase "interested in" was too broad, because the contract elsewhere allowed the employee to hold a small percent of interest in any other business.

While the U.K. Supreme Court's upcoming decision in this case is likely to turn on the use of the phrase "interested in," a clause that was possibly included by mistake, it may provide guidance on the wording of these clauses and on when courts can sever overly broad wording so that the rest of the agreement survives.

Avoid Formulaic Approach

Clearly, employers must take care when drafting restrictive covenant clauses. It's unlikely they'll be enforceable if an employer uses the same restrictions for every employee despite their differing grades, knowledge and experience.

The general legal rule in the U.K. is that everyone should be free to pursue a career unhindered, unless hindering the career is necessary to protect the employer's business interests.

For instance, it would be unreasonable to restrict a junior employee with little client contact or influence, and no special knowledge of the business, from working for any competitor for 12 months. But a court is much more likely to enforce a clause that temporarily restricts a director of sales or chief engineer from working for a new employer that provides the same service or type of product.

A list of named competitors for whom the employee should not work would be even better, as it narrows the scope of the restriction. The narrower the restriction, the more likely a court will enforce it.

[SHRM members-only toolkit: Introduction to the Global Human Resources Discipline]

Clock Runs, Even During Litigation

Employers typically take disputes over restrictions straight to the U.K. courts. Cases then often go on to the U.K. Court of Appeal.

Even during litigation, the clock continues to run on the restriction's time frame. Hence, these cases move quickly and tend to involve many lawyers, with legal costs running into hundreds of thousands of U.S. dollars, and that's before any damages.

Narrowly tailored restrictive covenants drafted when an employee starts work can save large sums when the employee leaves to work for a competitor.

Simon McMenemy is an attorney with Ogletree Deakins in London. 

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