Enforcing post termination restrictions

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This case of Patsystems V Neilly highlights the importance of ensuring that employees actually sign and return new contracts issued following a change in role or a promotion, which contain all the terms and conditions (including post termination covenants) to which the employee is to be subjected.

Covenants in Contracts of Employment preventing employees from joining a competitor for twelve months post termination will only be enforceable if they are reasonable. In 2000 Mr Neilly joined Patsystems as a Junior Salesman and although he had such a covenant in his contract it could not be justified in respect of the status and responsibilities of a junior position. However, it became justified and hence enforceable when he was promoted to Director of global accounts in 2005. Although he signed a letter acknowledging that “…all other terms and conditions outlined in my original documentation remain unchanged” the High Court ruled that the covenant was unenforceable and hence Mr Neilly was free to join a competitor.

The High Court held that since the original covenant was unenforceable and therefore invalid, it could not be saved and become enforceable simply through a subsequent change in circumstances such as a promotion. What was required was either for a new contract to be signed by Mr Neilly containing the covenant or for him to be asked to sign a fresh indication of his acceptance of the existing covenant.

Written by Robin Aston
13th December 2012