The termination of an employment contract is often described as
being like a divorce if things don't go well; particularly so
when post termination restrictions are involved. Although the
contract of employment is a key document, at the very centre is the
human element, which may be raw and emotional as any trust may be
deteriorating with considerable speed.
For the employer when an employee is breaching confidentially or
taking information (including address books and LinkedIn
connections), clients or staff there is concern for the welfare of
the business and the use by others of its trade secrets which have
been acquired over years of hard work. Now, the employer faces
losing skills, knowledge, and is having to take time away from the
day to day business and face costs of taking action. If they do not
act there is a serious risk valuable clients, staff or information
will be lost to the business.
For the employee, when the employer has dismissed them or they
are about to claim for constructive unfair dismissal they feel let
down, abandoned even, and are determined to move on possibly with
compensation but certainly without restriction as to their future
activities. They feel they have done nothing wrong other than
provide long and dedicated service to their employer.
Both must act quickly. At that point the parties may look to the
contract they agreed at the start of the relationship, when it was
new and strong and everything was positive. By the time of any
dispute, the employment contract may be old. The usual restrictions
will have been inserted to prevent an employee soliciting clients,
staff or removing confidential information, trade secrets all for a
limited period of time.
Whilst these situations are not uncommon it is surprising that
few of these disputes appear before the Courts. This may have to do
with costs, adverse publicity and the seriousness of the breach,
including what evidence there is and the strength of being able to
enforce the contractual terms.
In the last 12 months Ogier has addressed termination
restrictions before both the Jersey and Guernsey Royal Courts; once
for the employer and once for the employee. The case in Jersey was
the first for over 15 years and in Guernsey arguably the first.
What are the lessons?
For the employer, before taking any steps to dismiss an
employee, including a redundancy or restructuring program, think
through the impact this may have on your staff and their covenants.
Review and regularly update or reissue contracts of employment
particularly for senior staff, certainly when promotions or
material changes occur to ensure relevancy. Why? Because the non
competition restriction is the most invasive, it will not only be
scrutinised by the Court but reviewed in respect of the interest
being protected at the time it was entered into
and whether that interest should still be protected today.
For an employee, ensure the extent of restriction is properly
considered when entered into and whether they apply today.
If a director, remember your fiduciary duties
(acting in good faith, acting in the best interests of the company
etc) which are considered separately and create potential personal
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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