Post about "employment gap"

Restraint of Trade Clauses in Employment Contracts

Under UK law an employee has a duty of fidelity to his employer while working for them. This duty is implied in the contract of employment. The question often arises as to whether an employer can enforce contractual obligations on the employee after the expiration of the employment contract. In certain situations, the answer is yes. One tool that can be used to achieve this is a restraint of trade clause.The restraint of trade clause is a contractual term that expressly restricts an employee’s freedom to work, once the current employment relationship ceases. Such a clause will only be upheld by the Courts, if it is reasonable as between the parties and where it is consistent with the interests of the public. The pubic interest is that society should not be deprived of the services of a skilled workforce. The question of what is reasonable is considered on a case by case basis. In practice, the clause must go no further than is reasonable for the protection of the employer’s business.Restraint of trade clauses usually contain restrictions on the employee’s ability to work in a geographical area, or for a defined length of time. It is not uncommon or illegal for an employer to restrict a former employee from working within a fixed geographical area, or from working with a rival business to the former employer for a period of time after the cessation of the contract of employment. However, the restrictions must not be excessive. What is excessive depends on the nature of the work in question and the structure of the business.Decided cases in the United Kingdom have upheld restraint of trade clauses that prevent a former employee working with a rival business and from canvassing former clients of the employer for a period of twelve months post contract.Courts have also declared unreasonable and void restraint clauses that prevent a person from doing business within a 25 mile radius of London.A clause that purports to cover a worldwide restriction is unlikely to be upheld. The narrower and more specialist the market in question, the more likely the clause is to be upheld.It is more likely that a Court will uphold a clause as reasonable where it prevents the former employee from soliciting former clients, or from disclosing company secrets rather than stopping the former employee from working at all. Clearly a restraint clause which prevents a former employee from taking up a business which doesn’t compete with the former employer is unlawful.Where a restraint of trade clause is capable of several interpretations, some of which are considered reasonable, some of which are unreasonable, judges can sever the offending parts and enforce the remainder.Where a former employee breaches a restraint of trade clause, he is guilty of breach of contract. Such a breach gives rise to an action on behalf of the former employer for damages. It is difficult to assess the level of damages, some Courts measure damages at the level of the employee’s gain rather than the employer’s loss.A useful way for a former employer to prevent a former employee from breaching the terms of a restraint clause in an employment contract, is to seek an interlocutory injunction restraining the breach. In an application for injunctive relief the Court will have regard to whether there is a serious issue to be tried and will grant the injunction if it is of the view that the balance of convenience lies on the side of the employer. In UK decisions, other factors such as the likelihood of trade secrets being disclosed to third parties have been considered in granting the relief.However, if the practical effect of enforcing the injunction is to compel the employee to continue working for the employer, the injunction for specific performance of the employment contract will not be granted.The question of the enforceability of restraint of trade clauses is a fertile ground for litigation, both for employers and employees and can play a significant role in the formation of the contract of employment.