The Issue
Post termination restrictive covenants are unenforceable as in restraint of trade unless the business can show it has a legitimate interest to protect and the restraint is a reasonable balancing of the parties' interests.
The High Court decision this week of WRN Limited v Ayris concerned
- the enforceability of non solicitation of and non dealing
with customers restrictions; and
- a claim for breach of confidentiality against an employee
who removed a rolodex with 50 to 80 business cards and also
copied the email addresses of customers.
The employee had a sales role in a media business.
The Consequences
The covenants did not limit the restricted customers to those with whom the employee had dealings during the employment and so were held to be unenforceable as too wide.
The Court took a very practical view of the definitions of Business, Restricted Services and Restricted Products and Customer and found a six month restriction was reasonable in this case.
Contact details of many of the customers were on the business' website and others could be readily researched so the rolodex cards content and email addresses were not confidential but the cards belonged to the business and had to be returned.
The Solution
Non solicitation and non dealing covenants need to relate to the customers with whom the employee had dealings prior to termination. Older service agreements should be updated to state this.
The reasonableness of restrictive covenants is considered at the date of making the contract and not at the termination date so new contracts should be signed when employees are promoted or change roles.
The restriction period should be no more than is needed for a replacement to be recruited and, in the case of a sales role, to re-establish business contacts. This period will vary between industries and roles.
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.
