In the UK, an employer wishing to rely on post-termination restrictions must show:
it has a legitimate business interest to protect; and
the protection sought is no more than reasonable having regard to the interests of the parties.
But it is not necessary to compensate an employee, nor will the provision of compensation make a covenant enforceable if it is unenforceable in other respects.
A High Court case earlier this year illustrates the importance of limiting the scope of any restriction in the light of the particular employee's work. The contract of a senior financial advisor purported to prevent him from "directly or indirectly being engaged or concerned in" any business or activity of a direct competitor for 12 months after termination. The covenant was ineffective because it was too broad – it did not make a sufficiently close connection between the employee's own work (advising clients) and the prohibited activity. It would have prevented him from working for a competitor in any role, or taking a position in regulatory compliance, training or research, for example. Another problem with the clause was that it applied to any business the employee had been involved in at any time or in any way during the last 12 months of his employment, not just in his role as a senior financial advisor.
As there was no obvious justification for the severity of these restrictions, the employer failed the test of showing that the covenant was no wider than was reasonably necessary to protect its legitimate interests.
The other issue considered in this case was a provision in the contract which stated that any period spent by the employee on "garden leave" would be deducted from the period of the restriction in the covenant. (A set-off clause can help counter an argument that the employee is being kept out of the market for too long.) Although the employee's duties during his notice period were quite strictly constrained, the Court concluded that the set-off had not been triggered because he had still been carrying out the bulk of his regular duties. The Court decided that "garden leave" was limited to a time when an employee is not required or allowed to do any work.
The UK courts can grant "springboard" injunction to prevent employees from taking advantage of breaches of confidentiality duties. This type of injunction is becoming increasingly popular, typically in team move cases. It can be used in circumstances where there are no enforceable non-compete or non-solicitation/dealing clauses and quite often this so-called "interim relief" turns out to be the employer's main and final remedy – in a recent case, the defendants described it as "a matter of life and death" whether the injunction would or would not be granted.
In that case, the defendants had all resigned on the same day, after which their ex-employer discovered that they were setting up a rival business. The employer asked for springboard relief to prevent the ex-employees profiting from the use of names on business cards they had obtained whilst employed. On the evidence of the defendants' activities prior to termination of employment, the Judge decided that there was a strong case that they had breached their confidentiality duties by taking steps to compete for over a year before they left. A key factor was the secrecy with which they had conducted themselves while employed – there was plenty of evidence of this, one example being an email saying "All traces destroyed here".
The Court therefore agreed to issue injunctions against the defendants preventing them using customer databases, business cards and, interestingly, Linked-In groups which had been operated by one of ex-employees for the benefit of the employer. It appeared that these groups had been the source of addresses for the new rival company's invitation to an event.