Opinion

How unreviewed post-termination restrictions could leave you unprotected

25th February 2019

How unreviewed post-termination restrictions could leave you unprotected

Post-termination restrictions are commonly included in the contracts of employment of key employees. If drafted reasonably, they can restrict former employees from competing with their former employer, poaching employees or soliciting customers for a set period of time.

However, post-termination restrictions are seen as a restriction on trade by the Courts and will only be enforceable in limited circumstances. The employer must demonstrate that the restrictions put in place are no more onerous than reasonably necessary to protect the employer’s legitimate business interests.

Failure to ensure that post-termination restriction clauses are drafted correctly and reasonably is likely to lead to the clause being rendered void. The case of Tilman v Egon Zehnder provides a reminder of what could happen if your post-termination restriction clause is rendered void. In this case, Tilman proceeded to join a direct rival of her former employer and argued the non-compete post-termination restriction in her contract of employment was too vague to be enforceable.

This case was heard by the Court of Appeal in July 2018 where it was held the clause was void for reason of being too broad. The employer, Egon Zehnder appealed to the Supreme Court and the appeal hearing was heard in January 2019. While the outcome of this appeal hearing is outstanding, the case demonstrates the level of litigation that may be required to enforce post-termination restrictions. Litigation comes with a large cost, time commitment and unwanted publicity.

The post-termination restrictions in the centre of this litigation were drafted in 2004. The failure to review the enforceability of these clauses throughout Tilman’s career and in line with developments in case law on the reasonableness of such clauses has caused the issue of enforceability.

If you have any concerns about the enforceability of the post-termination restrictions in your contracts of employment or would like to discuss the possibility of introducing such clauses into contracts of key employees, please contact a member of our Employment team.

 

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