Scour the contract before celebrating a promotion
Tuesday, September 4, 2012/
As you progress in an organisation, you will most probably gain stronger client relationships, broader contact with fellow employees, and greater knowledge of the business.
All of those things are valuable to you, and help you perform well and get promoted.
Your knowledge and relationships are also extremely valuable to your employer.
So, when you’re promoted, your employer might ask you to sign a new contract, containing clauses protecting its interests during your employment, and if you leave.
Provisions of that kind are often known as “restraints” or “non-compete clauses”.
Even seasoned leaders and managers can sometimes believe the scuttlebutt that restraints are not enforceable, and blithely sign a new contract without taking legal advice first.
That is not a good idea.
As recently as last week, the full court of the Federal Court upheld a restraint that stopped a senior employee working for a competitor for two years. The decision was just the latest in a line of cases where restraints have been enforced.
During employment, you have a range of obligations to your employer, which arise under your contract and under the general law. Even without your contract spelling it out in black-and-white, your common sense would tell you not to compete against your employer, or use its confidential information for your own gain.
Once the employment comes to an end, your obligations change. You are not necessarily free from obligations, particularly if you have signed a contract containing a restraint.
Although it is true that the courts start from the position that post-employment restraints are unenforceable, there are wide exceptions to that “rule”. Restraints are often enforced, against the interest of the employee concerned.
The courts recognise employers’ client relationships – also called customer connections – as a legitimate interest able to be protected by a restraint. A common way of protecting those relationships is to prevent a former employee from actively soliciting the business’ clients. However, restraints can also seek to stop the former employee from working for a competitor for a period of time, or even from starting their own business. If the restraint is no more than is needed to protect the interest, and is reasonable, the courts are likely to uphold it, like the Federal Court did last week.
Losing employees to poaching can be expensive and damaging for businesses. The costs of recruitment and replacement, and the difficulties in attracting and keeping talent, are well known. The courts recognise employers’ interest in not having staff poached.
Confidential information can also be protected through clauses in your employment contract.
Seniority in your former employer’s business can make a court more likely to find your restraint reasonable, and to enforce it. The more access you had to information, the more your role involved business development, and the more you contributed to your organisation’s success, the more likely a court will think that the restraint against you is reasonable.
Even if you can shed some doubt on whether the restraint should be enforced, that does not stop a former employer from trying to enforce it. Put another way: if you have a restraint, and break it, the former employer could begin court action, which may be costly to defend even if you are ultimately successful.
For those reasons you should seriously consider any restraint that your employer proposes. An ounce of prevention may be worth a pound of cure: consider seeking legal advice before you sign. And don’t assume you’ll simply be able to ignore the restraint when you leave.
This article first appeared at LeadingCompany’s sister publication, Women’s Agenda.