There is no doubt that certain positions within organisations require post-employment restraints in employment contracts. This is a subject that can be quite complex and includes many layers. With that said, we can mention some of the main reasons why it is important to be aware of this in order to prepare for situations that may require these clauses.
What is a post-employment restraint?
This is the clause within an employment contract that stipulates the types of limitations for a former employee. This can include time restrictions before they can work for a competitor or clients.
What are the types of post-employment restraint clauses?
There are several types of trade clauses to consider and they are all relevant. One of them is the non-compete clause which prevents former employees from soliciting and canvassing business to another company that competes with or provides similar services to their former employer for a given period of time and a kilometer radius.
Another important clause is the non-solicitation clause which ensures that the former employee won’t be approaching the former employer’s clients or employees after they are no longer employed at the company. This could be for the purpose of obtaining information or recruiting. This clause extends to approaching and soliciting employees of the former employer for recruitment purposes.
This is partly for the purpose of ensuring that the confidentiality and trade secrets of the business are kept safe. It is exceptionally important for this to be the case when information can be of a sensitive nature.
A good example of how this situation can occur
The Court of Appeal of New South Wales recently upheld the decision to enforce a nine-month post-employment restraint against a former Sales Manager that decided to join a competitor’s business earlier than his post-employment restraints allowed for.
It is important to understand how this happened and why the former employer decided to take legal action. It is something that many businesses would probably consider if they had to deal with a situation of that nature.
This is the reason why we are going to elaborate on how this occurred and why it is so important for it to be considered a contentious issue for any business.
The way the situation unfolded
The Sales Manager’s contract included clauses such as confidentiality and post-employment restraints. These clauses required the employee to refrain from talking about anything related to the business and prevent him from being employed by a competitor. His contract also included a clause that stated that the employee was to devote his time, skills, and attention to his Job at this specific company within work hours.
Furthermore, the contract stated that the post-employment restraints required that the former employee would have to spend between 3 to 12 months avoiding employment positions at competitors’ ventures. The range of possible timeframes was 3, 6, 9, and 12 months. The timeframe would be decided based on specific situations.
As soon as the former Sales Manager accepted a position with a competitor, he started to give sensitive information that he had access to as part of his employment with his former employer. This led the former employer to initiate court proceedings to ensure that he would not be able to work with their competitors until the contract clauses had been met.
The court’s decision
The court decided that the former employee had indeed been at fault, and they concluded that the 9-month post-employment restraint was reasonable. The former employee then decided to appeal against the decision, but the court still concluded that this was a very valid case for the restraint to remain at 9 months.
It is definitely the kind of situation that calls for a very careful and specific employment contract. It is crucial for companies to safeguard their business and one way to do this is by ensuring the employment contract includes the appropriate post-employment restraints which will in turn prevent exposure to solicitation and poaching.
How can you protect your business?
It’s critical for businesses to seek appropriate advice when it comes to how they construct their employment contracts. This is going to be crucial if a former employee decides to start using company information to benefit a competitor or to become the competitor.
It is important to note that the amount of time for each restraint depends on many specific factors. This should be decided in a way that is reasonable for all parties involved. The problem is that this can often be the type of contention that generates disputes and disagreements.
This is therefore the reason why everything needs to be stated clearly when you decide to hire a new employee. The complex nature of employment contracts necessitates the help of a professional.
The draft and the final version of the employment contract need to be constructed with careful thought and choice of words. Ambiguity or leaving room for interpretation can be problematic and lead to unnecessary exposure for a business.
Choose experienced HR advice
Take your time to evaluate the options that you have and see which one fits your needs and specific requirements. This decision is going to lead to a robust employment contract for your future employees and should safeguard your business.
There is no question that employment contract clauses and post-employment restraints are important. The biggest issue that people have with these is that they can be crafted in ways that are unfair or unclear. This is why we cannot stress the importance of an experienced team for advice on the matter.
At HR Expertise, our HR consulting services in Melbourne and across Australia can support with employment contracts and post-employment restraints. Contact us today, we would love to work with you.