When an employee resigns, there’s a risk they could take all your secrets to your competitor. So can you make sure their mouth stays sealed? Barrister Charles Price explains your legal rights.

Most would agree that entrepreneurs who provide much needed employment are entitled to protect their investment in new technology and business connections from unauthorised use or disclosure by unscrupulous employees. On the other hand, nobody wants to see employees shackled to one employer long after their contracts of employment have ended.

Often an employer will try to protect a business by introducing agreements with employees which aim to prevent the employee soliciting or working for clients and/or competitors once they leave the company. Post termination restrictive covenants (ie Restrictive covenants in employment contracts which are intended to operate after employment has ended) are usually seen as anti-competitive and in restraint of trade.

Therefore, agreements to not poach staff, customers or clients from the employer, or not to work for a competitor after employment has ended, are basically void. They are enforceable only if the ex-employer can show that they do no more than is reasonable to protect his legitimate business interests.

What is capable of protection under a Restrictive Covenant?

In the case of Thomas v Farr plc and Hanover Park Commercial Limited*, a managing director (the employee) appealed a High Court decision on the basis that a non-competition clause in his employment contract was an unreasonable restraint of trade and unenforceable. The Court of Appeal upheld the decision of the High Court that the clause was reasonable and that there was a legitimate business interest to protect.

The employee was the managing director of a firm of insurance brokers. Contained within his employment contract was a 12 month non-competition clause preventing him from competing with the company for 12 months after the termination of his employment. The employee terminated his employment in 2003 and subsequently sought a declaration that the non-competition clause was an unreasonable restraint of trade and unenforceable. The manager also had a clause in his contract forbidding him to approach clients of the ex-employer for a period of 12 months.

The High Court Judge ruled that once employment has ended only information which is either a trade secret or, whilst not capable of being properly described as a trade secret, is in all the circumstances such as to require the same protection as a trade secret, is protected information. The judge held that the information being sought to be protected in this case was exactly the type of confidential information which is likely to fall under the category which can be protected by express agreement.

An item of information is either secret or it is not and, if it is not, its use or disclosure after the employment comes to an end cannot be restricted by a covenant in the employee’s service contract. Such a covenant can be enforced only if it is reasonably necessary to protect the employer’s secret and, even then, only for so long as such protection remains necessary. Such temporary protection may be necessary where the skills and knowledge that the employee develops include trade secrets but only until the rest of the industry catches up.

Further it was held that solicitation of clients was unlikely to be carried out personally by the Employee but by staff below him so there were practical problems in trying to police a non-solicitation clause which did not provide adequate protection. As such the non-compete clause was reasonable. The employee appealed this decision to the Court of Appeal. It was also upheld that in this circumstance due to the type of business being underwritten and the fact that the policies were often for 12 months or longer a 12 month non-compete clause was reasonable.

In summary, the type of information, which may be the subject of protection in a restrictive covenant must be:

• A trade secret




• Information that in all the circumstances, is such as to require the same protection as a trade secret (in the above case insurance policy details).

A restrictive covenant can be enforced only if:

• It is reasonably necessary to protect the employer’s secret.




• And for so long as such protection remains necessary.




• The terms of the covenant are reasonable in length and in general content. The shorter the duration or the smaller the pool of competitors cited the more chance that they will be allowed to stand (It is advisable always to seek legal advice when drafting the terms of such a clause).

The implied duty of fidelity prevents employees from working for competitors or discussing their employers’ private business with strangers without permission for so long as their employment subsists. Thereafter the employer can only protect genuine trade secrets and, only then, for so long as they remain secret. Tight and documented procedures for regulating the disclosure of information to those who need to know rather than draconian covenants are the proper way to protect such secrets.

Whilst in employment
The position is different during employment. Courts may grant an injunction forbidding an employee to work for his employer’s competitors while the employment contract subsists regardless of possible non-enforceability of post-termination restrictive covenants. In practice this rule is, for obvious reasons, especially important in cases where there has been constructive dismissal of a senior employee.

Garden leave
An employee who has been given notice of dismissal (or who has himself given notice to quit) and who continues to receive normal salary but is told not to report for duty during the notice period is said to be on ‘garden leave’. This is probably the safest way of ‘locking an employee away from the opposition’.

Typically this happens if an employer needs to protect himself against competition or poaching of customers, clients or staff by a senior employee who has given notice or is to be dismissed. Restrictive covenants are less reliable and difficult to enforce against ex-employees so it may be attractive for the employer to send the employee home on ‘garden leave’.

The attraction has been increased by recent case law confirming that post termination restrictive covenants can start at the end of garden leave. An employer may have difficulty in imposing ‘gardening leave’ if there is no specific contractual provision giving him the right to do so.

When there is no contract term

It is the case that many duties of an employee will not be expressed in black and white within a contract. Certain ‘invisible’ terms, however, are implied to exist in the contract of employment. An example is the duty of an employee to take reasonable care of the employer’s property. If sufficiently serious, breach of an implied term can justify disciplinary action, and sometimes even dismissal, just as much as breach of an express term. For this reason industrial action such as a work to rule can nevertheless sometimes justify disciplinary action and even dismissal.

Although there is an implied duty of ‘trust and confidence’ in employment contracts there is no overall implied duty of disclosure. In normal cases neither party is obliged to disclose to the other all facts (eg one’s own failings) which the other may consider relevant to deciding to enter into or. However each case must be considered on its own facts and merits so that if an employee is sufficiently senior he may be under a duty to disclose his own misconduct to his employer. Further if the employee is also a director, his obligations qua director will mean that he is under a positive obligation to disclose misconduct of which he is guilty.

The implied duty of fidelity prevents employees from working for competitors or discussing their employers’ private business with strangers without permission for so long as they are employed (it is advisable to remind employees of this duty in their contract of employment). Thereafter, the employer can only protect genuine trade secrets and, only then, for so long as they remain secret. Tight and documented procedures for regulating the disclosure of information to those who need to know rather than draconian covenants are the proper way to protect such secrets.

*Thomas v Farr plc and Hanover Park Commercial Limited [2007] EWCA Civ 118 27th February 2007
By Charles Price, barrister
www.charlesprice.net