Post-termination restrictions for partners and senior team members

This article is written by ARAG’s business partners at Ashfords Solicitors

If an employee or partner has knowledge of your clients, your confidential know-how and techniques, your strategic plans and staff data could be attractive to a competitor within your sector.

This article explains the types of restrictions that firms can implement to protect such information, as well as important points to consider when taking action.

What are the forms of restrictions?

Firms often seek to protect their positions via post-termination restriction clauses. The restrictions will usually take several forms:

Non-competition restrictions – which restrict former employees or partners from working in a similar role for a competitor.Non-solicitation restrictions – which prevent the poaching of the clients of the former employer.Non-dealing restrictions – which restrict a former employee from dealing with former clients, customers or suppliers, regardless of which party approached the other.Employee poaching restrictions – which prevent an employee poaching former colleagues.

The starting point for any post-termination restriction is that it is contrary to public policy and therefore void. However, if the firm can justify the restriction as being solely to protect its legitimate business interests, as opposed to stopping competition generally, and as going no further than is necessary, then it will usually be upheld and enforced. Recognising this, most lawyers treat sensibly-drafted restrictions as being enforceable.

As the restriction needs to be justifiable, it follows that it must not be drafted too widely. The burden will be on the firm, in the event of a clause being challenged, to show that it is sufficiently narrow to not go beyond what is reasonably required.

What should firms remember when implementing restrictions?

When imposing restrictions therefore, a firm should bear in mind particularly:

The geographical area of any restriction – a firm which doesn’t have a national presence might well struggle to justify a national restriction, albeit geography is becoming less relevant to professional practices.The length of time of the restriction, which must be reasonable – a restriction for more than 6-12 months will be difficult to justify.The range of the activities that the employer is trying to restrict – this would normally be referrable to the tasks the employee or partner performed.The extent of the restrictions should be proportionate to the seniority of the employee or partner’s position within the firm and clauses should be ‘tailored’ to fit the relevant employee or role. A ‘standard’ set of restrictions applied across a range of staff members is unlikely to be justifiable and restrictions are far better tailored to the individual, or to a job level.

Restrictions within, for example a partnership agreement, are more likely to be enforceable than restrictions in an employment contract, particularly given the seniority and access to confidential information a partner is likely to have beyond that of an employee.

Tactically, it is better to ‘undercook’ a restriction and ensure it is enforceable, than to ‘overcook’ and find that it is not. It is however often difficult to convince firms, keen to protect their goodwill, from erring on the side of caution.

The appropriateness of a restriction is determined as at the date it is signed. Thus if heavy restrictions are imposed on a junior employee, which would be justifiable as at the date of departure, but not at the date of signing, they will not be enforceable. Restrictions therefore require periodic review in order to maintain their enforceability.

Some partnership agreements and employment contracts may contain restrictions that were justifiable when written, but through changing judicial attitudes are no longer so. Some employees might have been promoted to roles where a restriction which would not have been justified, is now justified, and a simple contract update would now afford protection.

What can we take away from this?

Restrictions should not be a one size fits all and should be tailored to individuals, or at very least, roles.

Restrictions should be reviewed regularly and updated or amended.

It is always better to opt for a narrower restriction which is enforceable and observed, than to opt for a broader one to discover it is unenforceable.

Ensure legal advice is taken regularly as part of overall business risk management.

Confidentiality, data protection and wider professional obligations can often be used in tandem with restrictions to control the actions of a departing employees and partners.

Firms also need to be mindful of publicity, client relationships, management time and cost of enforcement – often agreements can be reached with departing employees obviating the need for dispute.

Disclaimer – This information was correct at the time of publishing