Unlike many other roles, the IT profession has often been fairly laid back about employees leaving their job. But times are changing, and due to a shrinking global environment, companies are looking to prevent valuable IT staff from leaving to join competitors and taking precious customer connections and potentially confidential information with them.

Only last year, Microsoft mounted a brief but public battle to enforce confidentiality and non-competition agreements when its corporate vice president Kai-Fu Lee left to head up Google’s product research and development centre in China. The action, raised by Microsoft, was only possible because Lee had signed up to post-termination contractual restrictions when he joined Microsoft.

Given his seniority, the terms of the contract were not unusual, but the action raised by Microsoft highlighted how rare actions are to hold staff to post-termination restrictions. While this is possibly due to the huge uncertainty as to what options are open to firms to restrict staff activities once they hand in their notice, it is more likely due to a general feeling that such restrictions are not worth the paper they are written on and are difficult and costly to enforce.

But there are ways that firms can use employment contracts to protect themselves, and reduce the chances of staff being poached by rivals. IT leaders will increasingly need to understand their options.

As with most employment law, the basic concepts regarding post-termination restrictions are not difficult. The starting point is that any term in an employment contract that restricts an individual’s activities after they have left the employment of a company will be considered a ‘restraint of trade’ unless the protection sought is reasonably necessary to protect the legitimate interests of the business.

Therefore, whether a court will actually enforce a post-termination restriction will always depend on the specific business interests of the employer and the reasonableness of the restriction in question.

There are broadly four types of restrictions: non-competition covenants; non-solicitation covenants; non-dealing covenants and confidentiality restrictions.

1 - Non-competition: These clauses seek to prevent an employee working for a competitor for a defined period within a defined geographical area.

They are probably the most difficult post-termination restrictions to enforce. Most of the time an employer can protect itself against an employee approaching clients and employees by means of a comprehensive confidentiality agreement or a non-solicitation clause.

But in certain cases, the employee may be so valuable or dynamic that the only way to prevent customers and clients going with the employee to their new employer is by means of inserting a non-compete clause in their contract of employment.

This is an option to consider for very senior executives. The length of the restriction and the width of the geographical area are important; too long and or too wide could make the covenant unenforceable.

2 - Non-solicitation: A restriction on non-solicitation of customers is very common and more likely to be enforceable, again as long as it is carefully framed.

Clauses should clearly be restricted to non-solicitation of customers and clients with whom the employee had dealings during a specified period prior to the date of termination. A prohibition on solicitation of former colleagues is common and usually courts are ready to accept that employers have a legitimate interest in maintaining a stable workforce.

3 - Non-dealing: A common defence in cases of alleged client solicitation is that customers approached the former employee rather than the other way around.

A potential solution for businesses is to include a ‘non-dealing clause’, which would prevent a former employee from dealing with former clients or customers irrespective of who approached who. Again the enforceability of this will depend on the facts. In one case, a non-dealing covenant was enforced because the court was convinced there was no other way for the employer to protect its customer base given the personal qualities of the employee in question – a marine reinsurance broker.

4 - Confidentiality: For many businesses, all they are interested in doing is protecting confidential information and trade secrets from being leaked to competitors. Unfortunately, confusion arises as to what employees’ obligations are once they have left regarding confidentiality, especially where there is no clear provision in the employment contract.

During the contract, an employee must keep business affairs secret, but once the employment has ended, unless there is an express contractual provision, the obligation of confidentiality will extend only to information that is strictly confidential and considered to be a trade secret.

In one of the leading cases, Faccenda Chicken vs Fowler: 1986, it was decided that a business could not confer confidential status on information just by saying it was confidential. Despite that, including an express confidentiality clause in contracts of employment is recommended as best practice. Evidence of the business’ attitude towards information will however help a court to determine whether it amounts to a trade secret, therefore capable of protection after the employment has ended.

It is advisable for an employer to specify the information it wants to protect in the employee’s contract. The devil is in the detail when drafting a confidentiality clause and it should be made very clear what is classed as a trade secret and that this excludes information in the public domain.

The employee view

For employees who have signed up to clear post-termination restrictions, one potential way of attempting to shake them off is by resigning and claiming their employer has by its actions repudiated an express or implied term of the contract of employment, and as a result the employer cannot insist upon performance by the employee of post-termination restrictions.

This is known as claiming constructive dismissal. This argument can have some weight with respect to non-competition, non-dealing and non-solicitation clauses, but it is likely to be much less convincing if used to evade enforcement of post-termination restrictions of confidentiality.

As an example, supermodel Naomi Campbell successfully argued this point in a claim against her former PA, Vanessa Frisbee, in 2002, who sold her story to the News of the World. Frisbee argued that as she had been assaulted by Miss Campbell, she was entitled to claim constructive dismissal and therefore was discharged from any post-termination contractual obligations regarding confidentiality.

The Court of Appeal set aside the summary judgment that had been granted in favour of Campbell, but one of the comments from a judge was telling: ‘There can be no conceivable justification for granting as a windfall to a wrongfully dismissed employee a present of his employer’s trade or other secrets of confidence’.

For many businesses, post-termination restrictions are most useful in acting as a deterrent to a departing employee who may be otherwise tempted to poach customers, employees or business. Often, simply the threat of an injunction or a claim for damages is enough to ward off approaches. This is especially the case if there is scope to bring the new employer into the claim with an allegation that the new firm has encouraged the former employee to breach their post-termination contractual obligations.

But firms riled by receiving a resignation from a valued member of staff should take care not to apply to the courts to enforce post-termination restrictions lightly. The perils of commencing legal action without proper consideration of the facts was demonstrated in a 2001 US law suit filed by the recruitment company Monster.com against rival WOWemployers Network.

Monster.com alleged that its former chief executive, Bill Warren, who had left the company in December 1999 and subsequently recruited 18 former colleagues, had used the employees to obtain confidential information. WOWemployers Network defended the claim, stating that the restrictive covenants that Monster.com was relying on had expired in December 2000 and that far from poaching the former staff, Warren had in fact been approached by them. Less than two months later, Monster.com dropped the lawsuit and agreed to pay WOWemployers Network’s legal costs.

With the increase in mobility of IT professionals, businesses have to protect themselves fully. Clearly defining what the business is protecting itself from and ensuring that post-termination restrictions are tailored to the individual circumstances of the employee are vital. The covenant should be framed precisely, reasonably and where the employer suspects restrictions have been breached, it should take careful advice on the merits and cost of enforcement. cb

Robyn McIlroy is an employment lawyer at international law firm Pinsent Masons

Best practice: top tips for IT employers 

• Businesses can protect customer connections and potentially confidential information by including post-termination restrictions, known as restrictive covenants, in contracts of employment. 
• The best time for staff to sign up to restrictive covenants is at the beginning of their employment. To ask existing staff to sign up to post-termination restrictions will involve a variation of contract, which requires their consent and is much trickier. 
• Businesses will usually only want their most senior employees to sign up to post-termination restrictions, but often more junior staff will also have access to valuable customer details or information that requires protection.
• There are broadly four types of post-termination restrictions: non-competition covenants; non-solicitation covenants; non-dealing covenants and confidentiality restrictions. 
• It is important that post-termination restrictions are tailored to individual circumstances and should be framed precisely and reasonably. Specific legal advice is recommended.