Post Employment Obligations - Part 1
In the first of our three (3) part blog on post employment obligations we look at why employer's feel the need to incorporate post employment restraints clauses and the increasingly common inclusion of "cascading clause' in employment contracts.
Post employment restraints
Nowadays, it is extremely common for a contract of employment to include post employment restraints that place obligations on a former employee to not compete against, or solicit clients and colleagues, from their former employer. Often, post employment restraints will impose both a period of time and geographical area in which the former employee is prohibited from engaging in the restricted conduct.
However, it is often the case that many post employment obligations are unenforceable at law due to being poorly drafted or being viewed by the Court as an unreasonable restraint of trade. Recent cases in the Courts provide good examples of why post employment restraints must be drafted carefully to suit each individual employee's role and reflect their position with in the company in addition to being a reasonable restriction in all the circumstances.
Why the need for post employment restrictions?
Post employment restrictions (also known as restrictive covenants or restraint of trade clauses) are usually incorporated in employment contracts in an attempt to protect an employer's trade secrets, confidential information, customer and client base and staff. In most instances post employment restrictions are a feature of senior executives employment contracts due to the level of confidential information they are privy to. However, restrictive covenants are increasingly being drafted into contracts of lower level employees.
In circumstances where a post employment obligation is alleged to have been breached by a former employee the employer will need to apply for an injunction to restrain the former employee from engaging in conduct that breaches restraint provision.
Often a restrictive covenant will be drafted into a contract of employment as a 'cascading clause'. These cascading clauses are drafted in an attempt by employers to allow the courts the ability to sever parts of a restrictive clause in circumstances where the Court believes the clause would be unreasonable but the whole clause not failing for being unreasonable. A basic example of a cascading clause is set out below:
You agree to not engage with a business that is in competition with Us for the period, and in the geographical area, set out below:
1. period of:
a. 12 months (if the court deems this unreasonable then refer to the below subclause); or
b. 9 months (if the court deems this unreasonable then refer to the below subclause); or
c. 6 months (if the court deems this unreasonable then refer to the below subclause); or
d. 3 months.
2. geographical area of:
a. Australia (if the court deems this unreasonable then refer to the below subclause); or
b. New South Wales and Australian Capital Territory (if the court deems this unreasonable then refer to the below subclause); or
c. Greater City of Sydney (if the court deems this unreasonable then refer to the below subclause); or
d. A radius of 10 kilometres surrounding our registered business address.
If your business needs further information on how to draft post employment obligations into your contracts please contact us.