Protection Clause / Restrictive Covenant

[wolfaroo]

Hi,

Does anyone here have any experience of Protection Clauses in Employment contracts? I have recently resigned from a company in a very niche industry and I have a number of clauses in my contract and I would like to knowhow these restrict my future activities within this industry. I have attached my main contract of employment and the relevant pagesfrom the employment manual.

Specifically I would like to enquire about the following:-

1. Does my contract tie me to the conditions of my employment manual?
2. Am I allowed any contact with clients from my previous employer?
3. Am I allowed to service clients of my previous employer in new employment?
4. If clients of my previous employer approach me in my new employment, am I allowed to engage with them?
5. If I am unable to engage in any way with clients of my previous employer, what are my options when this is my area of expertise in the industry and there are a very limited number of companies in this field?
6. If I ignore the clauses in my employment manual, what potential consequences/and or penalties might I be exposed to?

Any help will be greatly appreciated!

Many thanks.

[ULA]

Re: Protection Clause / Restrictive Covenant

Firstly, I would advise that before posting up documents they are fully redacted so that neither you nor your employer can be identified.

The contract you have posted relates to a fixed term contract from July until Dec 2006 and it would appear that the manual is also dated 2006. Please can you provide any more recent documentation in regard to both your employment contract and any updated information contained in the manual in relation to restrictive covenant/protection clauses in order to provide you with the correct support/opinon.

[Kati]

Re: Protection Clause / Restrictive Covenant

Firstly, I would advise that before posting up documents they are fully redacted so that neither you nor your employer can be

sorted xx

[ULA]

Re: Protection Clause / Restrictive Covenant

Thank you [MENTION=49370]Kati[/MENTION]

[wolfaroo]

Re: Protection Clause / Restrictive Covenant

Firstly, I would advise that before posting up documents they are fully redacted so that neither you nor your employer can be identified.

Apologies, I removed those details from the contract but hadn't noticed they were on this page too. Thank you for highlighting and thank you to Kati for promptly resolving!

The contract you have posted relates to a fixed term contract from July until Dec 2006 and it would appear that the manual is also dated 2006. Please can you provide any more recent documentation in regard to both your employment contract and any updated information contained in the manual in relation to restrictive covenant/protection clauses in order to provide you with the correct support/opinon.

I continued to work for almost 11 years beyond that fixed term contract and never received a new one so I believe my contract was therefore implied, based on the original terms? There was no new manual either. The attached documents from 2006 are the only documents I received and are therefore the most recent (despite being 11 years old!). Does that have any impact on the protection clause/is it outdated?

Thank you.

- - - Updated - - -

sorted xx

Thank you very much and apologies for the hassle!

[ULA]

Re: Protection Clause / Restrictive Covenant

Any employee on fixed-term contracts for 4 or more years will automatically become a permanent employee of the company and if the documents dated 2006 have not been updated/renewed then this is what we have to rely on.

The contract document you posted cuts off half way through clause 11 but nothing up to that point deals with the obligations placed on your restrictive/protection clause and to that point there is no clarification of the relationship between the contract and your manual. If you have clauses 11 onward up to the normal signing at the end of the document it would be helpful to me for you to post that (albeit redacted).

In regard to the manual and the Protection clause you are not allowed to undertake work for a client or supplier of your former employer for up to 12 months from termination unless you have taken up employment with a client or supplier, in which case you need to have gained prior written approval. So answers to your questions 2-3 are no. Question 4 may depend on how the client found you was it because you told them the details of your new employer and they contacted you or did they find this information through their own means?

What then needs to be considered is reasonableness. The extent of the restriction should be relative to a person’s position in a business e.g. it can be acceptable for a senior employee with access to sensitive information to be subject to more heavy restrictions, as opposed to a junior employee with no access to sensitive information. In terms of length of restrictive clauses it is rare that the court will enforce a restrictive covenant that lasts for over 12 months, unless there are exceptional circumstances. Typically, the court would only impose restrictions of no more than 6 months, provided they are reasonable and necessary to protect a legitimate business interest.

If you ignore the clauses then your ex-employer could seek an injunction pending any court case and claim damages for breach of a restrictive covenant, in which case they will need to show some loss resulting from the breach, which will normally be loss of profits on contracts or opportunities.

[wolfaroo]

Re: Protection Clause / Restrictive Covenant

Thank you for your reply Ula. The PDF has somehow clipped the last 2 paragraphs, which read as follows:

11.1 continues:
"I agree that the Company may disclose such information to third parties, in the event that such disclosure is, in the Company's view, required for the proper conduct of the Company's business. This clause applies to information held, used or disclosed in any medium."

12. Declaration
"I accept this statement, a copy of which has been given to me. I have also received a copy of the Employment Manual, which I understand is part of my terms of Employment."

Signed & dated (2006)

[wolfaroo]

Re: Protection Clause / Restrictive Covenant

Having spent the last few days reading about these types of Covenants, including previous cases/comments: https://www.employmentcasesupdate.co.uk/site.aspx?i=ed30926 and http://www.bailii.org/ew/cases/EWHC/QB/2012/1524.html my limited understanding is as follows. Please feel free to correct me on any of this!

Firstly, irrespective of any interpretation or opinion below, the only way to obtain a definitive answer as to whether this Covenant is enforceable or otherwise, is through a court judgement.

Having said that, it is IMHO more likely to be judged unenforceable than enforceable, based on the following:

• The covenant was verylikely to be unenforceable at the time it was signed 11 years ago, as it would have beenunreasonable in scope given my status as a new trainee employee in a very juniorrole at that time. A covenant that is unenforceable at the time it was imposed remainsunenforceable, regardless of whether my role subsequently changed to one where such acovenant might have been reasonable, i.e. through promotion to a senior role (I left as a manager).
• The covenant does not identify a or specify a legitimate business interest which needs protecting.
• It is not clear what exactly the former employee can or can't do during the 12 month term (e.g. am I permitted or not to have business dealings with airlines, the main suppliers of my previous employer? If not, that would clearly be restraint of trade given a travel agent can only operate by using exactly those suppliers. But the covenant gives the impression this might be restricted and/or is unclear whether this would be restricted or not).
• The covenant's scope is very wide and not clearly defined. It could easily be demonstrated that a more narrow covenant could be written which would adequately protect their legitimate business interest, if such an interest was defined/identified.
• The geographical scope is not defined at all. Does it apply to the world?
• Employee connections and skill are not a protectable interest and an employee is entitled to use them when he moves jobs.
• The 12 month duration is unreasonable for a trainee just joining the company, even more so given the original contract is for just 6 months!

My understanding is that if any one of the above can be demonstrated, and I believe all of them can be, then the covenant fails and is very likely therefore to be unenforceable.

On the other hand, I could be reading previous cases through rose tinted glasses!

Any comments/criticisms/corrections more than welcome :-)

[ULA]

Re: Protection Clause / Restrictive Covenant

The contract as provided by you gives your job position as being a Senior Booking Consultant, so at this level your company may have wanted to put in some protection against you taking clients or suppliers with you to a new role in another company, particularly as you have indicated you are working in a niche industry.

Since you have worked there for more than four years then the fixed term contract becomes your permanent contract, albeit they should have update this in the meantime, particularly to reflect your move to a management position.

There are issues with the wide scope i.e. it's not limited by geography and it is a twelve month period. It also would depend on how strictly your current employer wanted to enforce such a clause, as to do so they will have to consider their legal costs.

Does your employer know where you are moving to and have they raised any issues with you about it?