The debate around post-termination restrictions (PTRs) is currently in the spotlight, with the government actively consulting on potential reforms to PTRs. For businesses, this is now a crucial moment to reassess whether their current protections are fit for purpose.

Time and time again, we see employers caught off guard. Contracts that look robust on paper often unravel under scrutiny, with poorly drafted restrictions leaving businesses exposed. The reality is that if your PTRs aren’t carefully drafted and tailored, they may not be worth the paper they’re written on.

When disputes arise, unenforceable provisions can mean losing key clients, sensitive information, or even entire teams without recourse.  Now is the time to consider whether your PTRs are truly protecting your business or are they giving you a false sense of security.

PTR Questionnaire

We have developed a business protection questionnaire designed to help provide you with an overview of your business’s employment protections and potential exposure based upon some key questions. You can access the questionnaire by clicking here.

What Are They?

PTRs, also referred to as restrictive covenants, are clauses within contracts of employment that seek to limit an employee’s actions after their employment has ended.

There are several types of PTRs, with the most common being:

1. Non-compete restrictions
   
   These prevent an employee from working for a competing business or setting up a rival enterprise for a specified period after leaving their employer.
   
2. Non-solicitation restrictions
   
   These restrict an employee from actively soliciting or “poaching” certain clients, customers, or colleagues.
   
3. Non-dealing restriction
   
   Going a step further than non-solicitation, these prevent an employee from doing business with the employer’s clients entirely, even where the client initiates the contact.
   
4. Confidentiality and non-disclosure obligations
   
   These aim to protect confidential information, trade secrets, clint databases and other sensitive material that could prejudice the employer if misused (unless already in the public domain)

PTRs are designed to protect an employer’s legitimate business interests once the employment relationship has ended. They are usually time‑limited, commonly lasting between three and twelve months.

But Are They Always Enforceable?

A key question we get from employers and employees alike is “are the restrictions enforceable?”.

The existence of a PTR does not automatically mean it is legally enforceable. As a matter of principle, a restriction will be void as a restraint of trade unless an employer can show it goes no further than reasonably necessary to protect a legitimate business interest.

The reasonableness of a restriction is commonly assessed by factors such as the scope, duration and geographical reach of the clause.

Employers should always be alert to the risk that poorly drafted PTRs are likely to be struck out entirely. This can leave the business exposed at precisely the time it most needs protection, particularly where key client relationships or confidential information are at risk.

Garden Leave and PTRs

Although PTRs apply after termination, garden leave can have a significant impact on their duration. Where an employee is placed on garden leave during their notice period, the length of any post‑termination restrictions is typically reduced by the period spent on garden leave.

However, garden leave is an invaluable tool for employers. It enables the organisation to retain control over confidential information, client relationships and business strategy during an employee’s notice period, while also managing the timing and manner of the employee’s departure. In addition, it creates distance between the employee and the business, reducing the risk of competitive harm, employee poaching or disruption, and allowing a smoother handover of duties and protection of goodwill.

Ultimately, it remains a matter for the employer to decide whether to place an employee on garden leave, an employer should consider the specific circumstances of the departure and the level of risk involved. Employers should also be mindful that any period spent on garden leave will typically be set off against the duration of any PTRs. Employers will need to strike a careful balance between the short-term control and longer-term protection.

Common Pitfalls

A common mistake is applying the same set of PTRs across all employment contracts regardless of seniority. The more junior the employee, the less likely more restrictive or longer lasting restraints will be viewed as reasonable or proportionate.

When drafting PTRs, employers should carefully consider:

• The seniority of the role;
• Whether the employee will have exposure to key clients or suppliers;
• Access to confidential information or trade secrets; and
• The genuine business risks posed on exit.

Another common mistake is applying a blanket period of restraint across all restrictions in a contract. It is difficult to justify a 12‑month non‑compete restriction when a company also has the benefit of less restrictive measures (such as non‑solicitation or non‑dealing clauses) for the same period of time which will arguably provide adequate protection.

Similarly, restrictions may be unenforceable where the geographical scope is excessive or where the drafting fails to identify the specific business interests requiring protection.

How We Can Help?

At Herrington Carmichael, we are experienced in reviewing post‑termination restrictions and advising on their enforceability. We regularly support both employers and employees in this area, and our Employment Team would be pleased to assist you with tailored advice. Please contact us.