Employment  > Restraint on competition

Duties of an employee

An employee is under a duty to exercise the level of skill and care expected of someone reasonably competent to do the job.

For a professional or manager, different standards may apply. Professionals may have an obligation to ensure that professional standards, including professional conduct rules, are maintained.

An employee is under a duty to act in the best interests of you the employer and any act that deliberately undermines your business may be a breach of contract.

Employees are also under a duty to obey orders from their employer, provided that they are reasonable and proper in all the circumstances. For example, they would be justified in refusing to carry out an illegal order or one that would cause them to breach professional conduct rules.

A duty of fidelity (or loyalty) applies during employment preventing an employee from soliciting clients or customers, taking away your business or from setting up in competition or working for a competitor, during employment. In order to be in breach of contract however they would need to have taken actual steps and not merely have expressed an intention to compete with you in the future.

Your contract of employment should expressly set out the type of information that may not be disclosed (confidential information).

Restriction after an employee leaves

Provided the restriction is reasonable, an employer is entitled to safeguard its proper business interests by imposing certain restrictions on commercial activities, even after employment has ended.

Your may be allowed by the courts to protect your legitimate business interests including: business secrets or confidential information, trade contacts, goodwill and workforce.

However, the interests of an employer must be balanced with an important public policy concern that free competition must be encouraged and individuals must be entitled to use their personal skills and attributes for their own benefit. A post termination restriction must not be “in restraint of trade”.

An employer’s interest will be legitimate if they some ‘proprietary right’ or ‘ownership’ over the subject matter they want to protect. If the information etc can be regarded as belonging to the employer it may be legitimate for the employer to protect its interest by use of a post-employment restrictive covenant.

To be enforceable, however, a restrictive covenant must also be reasonable in terms of its scope and in the public interest.

Trade connections, customers, suppliers, the workforce, trade secrets or other confidential information, have all been held to be legitimate business interests.

An employee can legitimately be prevented from disclosing trade secrets or confidential information acquired during employment.

It is uncertain precisely what information may legitimately be protected by an employer after employment ends. Generally, regard will be had to

• the nature of the employment

• the nature of the information itself

• whether the employer has stressed the confidentiality of the information to the employee

• whether the relevant information can easily be isolated from other non-confidential information which is part of the same package of information.

If in doubt as to whether information is confidential, it should be borne in mind that an employer can only protect that which can properly be regarded as its property.

The employer cannot protect against employees utilising general knowledge, experience or skill obtained during employment, as such knowledge and skills are personal and they should be free to make use of it in future employment.

Similarly, an employer has no proprietary right in respect of employee’s personality or inter-personal skills and cannot therefore protect itself against losing clients who wish to follow the employee, because their relationship with them is the reason why they have done business with you the employer.

The courts in recent years have accepted that employers may have a legitimate business interest in maintaining a stable trained workforce and you may therefore legitimately rely on a ‘non-solicitation of staff’ provision, to prevent them from soliciting certain former colleagues and persuading them to leave.

Employers may also protect themselves against former employees poaching its customers or clients. Such a restriction may be valid even if the clients or customers came with the employee in the first place. Such a restraint should be limited to the customers or clients with whom the employee had material contact during their employment, otherwise it could be held to be wider than is reasonably necessary to protect a legitimate business interest.

If they had no significant contact with the customers/clients or suppliers in question, there will probably be no legitimate interest worthy of protection.

Although a restraint may well be reasonably necessary to protect a legitimate business interest, it may still be unenforceable if it is unreasonably wide. A restrictive covenant must be reasonable in terms of subject-matter, geographical location and time.

Employers need to give careful consideration to the geographical extent of the intended restriction because its reasonableness will depend on the nature of the business and competition, the wider the geographical restriction, the less enforceable the clause.

The courts will subject a geographical restraint to close scrutiny because the effect of a wide restraint may be to indirectly prevent competition per se and this would not be in the public interest.

The intended duration of the restrictive covenant must also be reasonable. For example, a covenant purporting to restrain an employee from working for two years after employment may well be unreasonable and unenforceable.

If you wrongfully, or constructively dismiss (in breach of contract) the employee will not then be bound by any post-termination restrictive covenants The reasoning for this is that in wrongfully dismissing an employee the employer commits a breach of contract which should not entitle it to then rely on other parts of the contract.

This area of law is very complex and this is just a basic summary. Please seek our specialist advice on any particular case.