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Post-Termination Restrictions: Make Sure Your Business Is Protected

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Media agencies, like many businesses, place a huge degree of trust in their key people. It is individuals, rather than companies, who have the relationships with key customers, make the strategic decisions and know detailed information about the business,

Consider who in your  organisation could do the most damage if he or she were to join your main competitor, try to poach major customers, use confidential information to gain competitive advantage and/or attempt to bring other key staff members with them. It may be the management team, a star salesman, freelancer or the creative team, but there will be people whose  departure could have a significant financial impact.

No business wants to lose its main players, but sometimes it is unavoidable. Protections need to be put in place to prepare for the worst-case-scenario and it is better to put post-termination restrictions and protections in place during employment, rather than wait for a letter of resignation.

Restrictive covenants preventing staff from competing and soliciting staff and customers are commonly used, but often do not offer the protection they promise - or indeed any protection at all - as they are not properly drafted or have not been updated as an individual rises through the ranks.

Any such restrictions on an employee will be unenforceable in the courts unless they are for the protection of a legitimate business interest and only go so far as is necessary for the protection of that interest. The specific business interest should be identified and set out within the wording of the covenant. A business will not be entitled to rely on an additional interest at a later stage. Careful drafting is key.

The restriction must then only go so far as is necessary for the protection of that interest. In other words, you should only seek to restrict an individual for the shortest period which will provide meaningful commercial protection. It is important to avoid a one-size-fits-all approach. The reasonableness (and therefore the enforceability) of a restriction will depend on the individual circumstances of the case. What is reasonable for a Sales Director, with daily face to face contact with customers, is unlikely to be reasonable for a Financial Controller. A company needs to consider what it is trying to protect, what damage could be done to the particular business interest by the specific individual and then determine what level of restriction would be reasonable.

Failure to get it right can be disastrous for a business. If a court decides that a restriction goes too far, it will not alter it. So if you try to restrict your Sales Director for 12 months and a court finds that 9 months would have been more appropriate, it will not reduce the term. The restriction will fail outright and the Sales Director will be free to do as he wishes.

Dealing with this issue often gets pushed to the bottom of the priority list. We like to hope for the best and it is easy to ignore the issue and hope your key workers will stay with your business until retirement. However, the level of protection a business can get once an employee has decided to jump ship is minimal. Reviewing all of your restrictions now could save a vast amount of money in the long term.

Don’t let your competitors get access to your confidential information or poach your best workers. Make sure your business is protected.

Disclaimer: Anything posted on this blog is for general information only and is not intended to provide legal advice on any general or specific matter. Please refer to our terms and conditions for further information. Please contact the author of the blog if you would like to discuss the issues raised.