Employers often insert provisions in employment contracts which restrain the post employment activities of their employees. These restrictions may be necessary because an employee is quite valuable whether because of his role in marketing your brand or because he will hold valuable information or know-how about your business. However, the possibilities are not limitless and the employer cannot “tie the hands” of the employee indefinitely.

Generally, a provision in an employment contract will only be enforceable where it is “reasonable between the parties” and “reasonable in the public’s interest”.

To be “reasonable between the parties” the employer must show that he has a proprietary right to protect, such as a trade secret or know-how, which is exclusive to his business, the disclosure of which would cause him to suffer damage. Accordingly, the employer must not only show that the employee knew of the trade secret or know-how but that in his new position there is a likelihood that this knowledge will be disclosed and that the company’s customers will follow the employee to his new place of employment. These trade secrets need not be patentable inventions but can be secret processes or even specialised knowledge regarding the running of the particular business.

Restraint of trade provisions are generally also a matter of public interest since they may be construed as an attempt to reduce competition in a market. The second limb of the test, “reasonable in the public’s interest” is therefore just as important as the first limb ie “reasonable between the parties”. The court will look at whether the restriction, in the public’s interest, needs to be as wide as it has been drafted. Generally, the courts will not enforce contractual provisions which cover a wide geographical area and are also lengthy.

The circumstances of each case must, however, be considered to determine if the proposed restraint will be reasonable. For instance, a court has found that it was unreasonable to restrain an employee in circumstances where that employee had developed no special relationship with the customers. In another instance, a court decided that the restriction of an engineer within a 15 mile radius of his former employer was too unreasonable because the entities at which the employee could ply his trade only existed within that diametre.

The courts have also struck down agreements which, though not in the context of an employment contract, ultimately had the effect of a restraint of trade provision. In one UK case, competing businesses made an agreement under which each agreed not to hire employees of the other during the five years preceding termination of those employees. The court found the agreement null and void as the employers could not covertly do what the courts would not allow them to do overtly.

In many instances, the employment contract will specifically restrict the employee from soliciting the employer’s customers following termination or even just prior to termination. Case law suggests that even subtle attempts at solicitation may also be restricted. In a particular case, financial advisors, who intended to leave a company purchased another dormant company at which they intended to carry on their trade following termination. A client requested a transfer to the new company once the dormant company was up and running to which the financial advisors agreed. The UK Court of Appeal found that while the client had not been solicited, the financial advisors had failed to put the employer’s interests first. The court ordered the financial advisors to pay damages to their former employer.

Restraining provisions are usually drafted and negotiated at the very start of the employee/employer relationship when everything seems fine. However, the prudent employer and employee must contemplate, at that stage, what may occur at the demise of the relationship. The employee must ask himself particular questions such as:

1. Will I be able to ply my trade in my field immediately after termination?; and

2. How long can I survive under the restriction?

On the other hand, the employer should contemplate:

1. Whether the provision is reasonable given the nature of his business,

2. What is the geographic or time restriction needed to make the restriction reasonable,

3. Does the business depend on certain trade secrets and know-how and will the employee have knowledge of this information?; and

4. Will the employee suffer any hardship in finding employment as a result of this restriction?

It is the employer who bears the burden of proving that a restrictive provision in an employment contract is reasonable. Such a provision cannot, therefore, be entered into lightly.

Grace Lindo is an Associate in the Commercial and Intellectual Property Departments at Myers, Fletcher & Gordon. She may be contacted at grace.lindo@mfg.com.jm or via www.myersfletcher.com.