Post-termination restrictions, including non-compete clauses, are an important tool in protecting key client information, know-how and relationships which can often be an employer’s most valuable assets.
In Square Global Limited v. Leonard,Mr Leonard was a broker and his contract of employment included a six-month notice period and a restriction that prevented him from working for a competitor for six months after his employment terminated. He resigned from his employment without notice to go and work for a competitor. He claimed he had been constructively dismissed and was therefore released from his obligation to give notice and from the non-compete clause.
The High Court rejected his argument, holding there was no constructive dismissal and that he had breached his employment contract. It accepted his employer’s argument that Mr Leonard should remain employed by them for his full six-month notice period.
The High Court went on to find that the six-month non-compete clause was reasonable and went no further than necessary to protect his employer’s legitimate business interests. Importantly it also decided that the absence of a “set-off” clause which would have reduced the restricted period by any time spent on garden leave was not fatal to the restriction. Accordingly it decided that not only was Mr Leonard required to serve out his notice but wuld also b subject to the six month restriction. He would therefore be kept out of the market for a total period of 12 months before he could go and work for a competitor.
This case is a useful reminder that:
- non-compete clauses can, and will, be enforced by the courts;
- such restrictions still need to be carefully drafted so that they go no further than reasonably necessary to protect the employer’s legitimate business interests; and
- an offset provision in respect of garden leave is not an absolute requirement though the longer the covenanted period the more likely this is to be necessary to meet the reasonableness test.