Post-Employment Restraints

Post-Employment Restraints
Wednesday August 22, 2018

It is a well-known fact that while employees can be an employer’s greatest asset, they can also be an employer’s biggest potential threat.  Employees often need to be privy to a volley of their employer’s confidential and proprietary information to effectively execute their responsibilities.  The best way an employer can protect itself from an employee using such information after the employment relationship ends, is to enter into post-employment restraints with the employee.  

Post-employment restraints usually take the following forms, and parties can agree to some or all restraints being applied:

1. Restraint of trade – Prevents the employee from competing with the employer after the parties’ employment relationship ends:

    a. for a specified period of time; and

    b. within a specified location.

2.  Restraints relating to clients/customers/suppliers – These can take the form of non-solicitation restraints (meaning the former employee cannot solicit a client/customer/supplier for a specific period of time), or non-dealing restraints (meaning the former employee cannot deal with a client/customer/supplier for a specific period of time, even if the client/customer/supplier contacts the employee seeking their services).

3.  Restraints relating to other employees – Usually these are non-solicitation restraints preventing the former employee from soliciting employees of the employer for a specified period of time.

In order for any post-employment restraint to be valid and enforceable it must be necessary to protect the proprietary information, and reasonable in terms of time and location.  

Finally, reasonable consideration must be paid to the employee at the time of agreement.  Most post-employment restraints are negotiated and agreed before an employee commences work.  At this stage, consideration can simply be a portion (usually unidentified) of the employee’s annual salary or regular wages. 

When employers want to negotiate post-employment restraints with current employees, additional consideration is required to ensure the restraint is valid and enforceable.  Additional consideration may be a one off payment or an increase to the employee’s annual salary or hourly rate.   

Post-employment restraints are viewed suspiciously by employees and the employment authorities alike.  If a restraint is challenged by an employee, the onus to prove its reasonableness lies with the employer.  If it is found to be unreasonable, it may be read-down or deleted by the employment authorities and the employer will not receive the benefit it anticipated under the restraint.  As such, it is crucial that any post-employment restraints are carefully considered and specifically tailored to each employee to ensure reasonableness.

If employers are concerned that a former employee is in breach of a post-employment restraint, the employer can seek an interim injunction against the former employee from the Employment Relations Authority.  If the employer considers that the former employee’s new employer has aided or abetted the breach, a penalty may be sought from the new employer as well.

If you would like assistance with drafting and/or negotiating a restraint either as an employer or an employee, or if you would like advice of the reasonableness or enforceability of any restraint, please do not hesitate to get in touch.

 

By Anneke Reid