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Can post-termination covenants in your employment contract restrict your settlement?

Do you know what’s in your job contract?

In the excitement of starting a new job, you might be forgiven for not minutely examining the small print in your employment contract.  However, ‘the devil lies in the detail’ and you can unwittingly agree to accept inappropriately restrictive post-termination covenants when you sign the contract.

There is nothing wrong per se with post-termination covenants.  However, a covenant is a binding agreement, and some of the ones in your contract of employment may well have an impact on your future working life which you wouldn’t want and certainly didn’t anticipate at the time you agreed to them by signing your contract. This may only come to light after you eventually leave your job, however many years down the line that may be.

What are post termination covenants?

Definitions of post-termination restrictive covenants (often referred to just as restrictive covenants) and the extent to which they can be enforced are discussed further in our more detailed article: Restrictive Covenants.  Suffice it to say here that the restrictions in post-termination covenants are designed to prevent you from doing things after you leave your job which would/could have a detrimental effect on your former employer’s own business. For example, the covenants may prohibit you from:

  1. taking staff with you
  2. setting up a business in competition with your former employer
  3. poaching your former employer’s clients/business contacts
  4. divulging sensitive/confidential information about such things as product designs, customers/clients, financial information.

They apply for a given period of time, typically between 3 and 12 months.

What happens to post-termination covenants when you leave your job?

If you leave your employment without a settlement agreement, the post-termination covenants in your former contract of employment will continue to restrict you for their stated duration.  If you are leaving with a settlement agreement drafted by your employer, then it will undoubtedly incorporate the covenants that are in your contract.

One of the main problems with post-termination restrictive covenants is that they may place unduly tight restrictions on your future employment opportunities or business ventures.  The last thing you want is to have a prospective employer tell you that they can’t offer you that lucrative new job after all, because of the restrictions placed on you by the post-termination covenants in your former employment contract. Or the constant worry of being taken to court by your ex-employer because you’ve started a new business venture which breaks the covenants.

Can you change the restrictions of post-termination covenants?

If you/your solicitor consider that the post-termination covenants in your draft settlement agreement are over restrictive, then you may be able to negotiate the complete lifting, or at least the easing, of some of them.

You might concede that other existing restrictive covenants – or even some new ones that your employer may want to add – are tolerable and needn’t be contested,  although preferably in return for an enhanced payment in your settlement agreement.  (A word of warning here: you are liable to pay tax in full on such payments.)

Summary: Look before you leap into a new job contract

So, the main lesson to be learned from the above is this: only sign a new employment contract after very carefully considering any post-termination restrictive covenants contained within it.  If you’re not sure, consult a specialist employment lawyer for advice.  Otherwise you could find yourself chained by covenant shackles that will certainly curtail your future employment prospects for months, and maybe even longer.

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