Coronavirus the impact on post-termination restrictions

Many employers will seek to rely on post-termination restrictions (PTRs) to defend against potential damage caused by employee competition.  However, the coronavirus pandemic has thrown up new issues for employers when seeking to enforce PTRs.This article suggests four questions you should ask when considering if your PTRs are at risk and explains the impact of Covid-19 on UK courts.

Can employees exploit disputes about return to work in order to be free of their PTRs?

For those employers which have had large parts of their workforce working from home over the last few months, plans on how and when to reopen workplaces will be well underway.  An issue for many employers is what to do about those employees who (for a variety of reasons) are refusing to return to the workplace.    

One risk of insisting that individuals return, without adequately dealing with any reasonable concerns they have (e.g. regarding health and safety), is that employees claim they have been constructively dismissed.  If an employee is successful in this argument and can demonstrate that the employer has fundamentally breached the employment contract, then not only can the employee move to a competitor immediately (without serving out any remaining notice period) their PTRs will also fall away.

To protect against this risk, we recommend that employers:

• Ensure that they have provided a safe “Covid-secure” place of work that follows government health and safety guidance

• Carry out a risk assessment, consult about health and safety at work in light of Covid, including any request to return to the workplace, and respond to reasonable concerns;

• subject to applicable data protection policies and the law, monitor employees for suspicious activity (i.e. activity that indicates they are preparing to compete); and

• if an employee does seek to claim constructive dismissal, investigate and respond immediately.

How will furlough impact on the enforceability of PTRs?

The key to enforcement of PTRs is ensuring that they are well-drafted and tailored to the relevant employee.  One effective method of tailoring PTRs is to include a so-called ‘look back’ period.  This is used to identify, for example, those clients or prospective clients with whom the employee had contact during a fixed period (the ‘look back’), ending on the termination of their employment.

Employees who have spent significant time on furlough, potentially followed by a further period of garden leave, may not have carried out any relevant activities which would be caught by their look back period.  So, to protect against this risk employers can:

• consider whether the employee should work out their notice period, or if on garden leave, carry out special projects to ensure relevant clients/employees/suppliers are caught by the look back period;

• consider using a settlement agreement to introduce new PTRs which may extend the relevant look back period to cover a time when the employee was actively working; and

• consider whether the PTRs are all still relevant. It may be better to waive certain PTRs in exchange for strengthening those that best protect the business from the challenges posed by Covid-19.

Does working from home affect PTRs?

One of the lasting changes arising out of the coronavirus pandemic is likely to be an increase in employees regularly working at least part of the week from home. One of the downsides of increased home-working is the reduced level of scrutiny employers have over employee activity. As well as making it difficult for employers to record activity such as contact with clients or customers during any ‘look back’ period, it also may be hard for employers to monitor confidential information to which the employee had access.  Protecting confidential information is often cited as the business interest employers seek to protect to justify non-compete PTRs. Therefore, it is important not only to have evidence that the employee accessed confidential information, but also that it is not generally available to anyone within the business.

To avoid these difficulties employers can:

• review whether employees are permitted to use personal devices or systems when working from home.If use of personal devices is unavoidable, employers should consider whether they can use technology to ensure employee activity is adequately monitored;

• increase security measures to ensure access to confidential information is limited and monitored even when employees are working from home; and

• taking into account data protection obligations, ensure appropriate policies allow the employer to inspect or interrogate personal devices or systems, if unlawful activity is suspected.

Can employers rely on PTRs when the employee has left as a result of redundancy or restructuring?

Many employers are seeking ways to save costs to mitigate some of the damage caused by the pandemic.In some cases, that will involve redundancies or restructuring exercises to streamline the business and protect its long-term future.When employees are terminated in these circumstances, a frequent request is to be released from any PTRs to enable the employee to quickly move onto alternative employment.

Before agreeing to any such release, employers should consider:

• whether all the PTRs are still relevant, or some can be reduced or waived in return for strengthening others;

• whether the employee will be working out their notice period, placed on garden leave or paid a payment in lieu of notice (PILON).If there is enough time for adequate handovers to protect customer or client connections the employer may no longer need PTR protection; and

• whether to waive PTRs in return for a reduced compensation award, if a settlement agreement is being negotiated.

Can employers still start proceedings to enforce PTRs during Covid-19?

Yes. Unlike many other jurisdictions, UK courts have not closed during the pandemic. Hearings have continued and been held remotely where possible. This means the usual remedies, such as injunctions to enforce PTRs, are still available. 

Recent rulings have made clear that the pandemic is “not a get out of jail free card”. Judges still expect deadlines to be met and any applications for adjournment will be heavily scrutinised. However, the challenges posed by COVID-19 (such as preparing evidence remotely) have been recognised and judges may be more willing to grant extensions of time. 

We’re happy to help with any advice you need about your PTRs.  We can also provide fixed-fee audits of your existing PTRs to identify potential gaps as well as opportunities to refine the drafting.  For more information please contact Carla, Roberta or your usual Lewis Silkin contact.