The starting point here is the ‘restraint of trade’ doctrine. This stipulates that any restrictions on a former employee’s ability to compete with their former employer are unlawful and void, unless certain criteria are met.

For a post-termination restriction to be valid:

• The employer must have a legitimate interest to protect. A restriction aimed solely at preventing competition between the former employee and employer will not be valid. Instead, there must be some form of defined business interest. Examples would include trade secrets and confidential information; trade connections, customers and suppliers; and the skills of the employer's workforce.
• The restriction must be reasonable between the parties. Reasonableness does not require that the restriction provide equal benefit to both parties, but does mean the restriction is no wider than necessary to protect the legitimate business interest identified. Restrictions are more likely to be considered reasonable if they are limited in their nature, geographical ambit and duration.
• The restriction must be reasonable in the public interest. This requirement does not add much to the requirement that the restriction is reasonable between the parties and has only rarely arisen as an issue in cases involving post-termination restrictions.

If these criteria are met, then it is likely that the term restricting the former employee’s ability to compete will be valid. The most suitable remedy for breach is often an interim injunction. This is because damages may be difficult to quantify and the former employee may not have the means to pay.

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HR Toolkit | eLearning Course

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