Feb 10, 2021
Legal Insights

Restraint of Trade Clause in Contracts for Senior Executives

Richard Grogan
8 min read

Contracts of Employment for senior executives and senior managers in organisations will normally have clauses which include restrictions in relation to;

  1. Confidential Information,
  2. Intellectual Property, and
  3. Restraints of Trade as regards working for a competitor

A leading case on this was the case of Ryanair DAC and Peter Bellew 2019 IEHC 907. This case which related to a Restraint of Trade Clause in the Contract of Employment was the subject of a significant case in the High Court. Mr. Bellew won the case. However, saying this, Mr. Bellew did not get an Order, subsequently, to cover his full costs of the High Court action.

Photo by Fotis Christopoulos

When it comes to a Contract of Employment it is imperative that particularly senior executives and senior managers check their Contracts of Employment before signing. This will often mean getting legal advice from an Employment Law Solicitor.

In many cases individuals will look at the package which is being given and, on that basis, sign the Contract. In the case of more senior individuals, in an organisation, issues relating to Restraint of Trade Clauses, the use of Confidential Information or Intellectual Property rights are ones which need to be carefully considered before any Contract is signed.

In the area of a Restraint of Trade the basic principle is that the legitimate interest of an employer is restraining an employee from taking up alternative employment which is limited to roles which would risk the disclosure or use of its protectable information. Where a restraint on employment, in any capacity, goes beyond that interest then the employer will not be able to justify same.

That gives an awful lot of comfort to individuals. However, where these issues are not addressed at the start the reality of matters is that the larger the organisation, the greater the funds they have, and the more it is going to cost a senior executive to fight a Non-Competition or Restraint of Trade Clause in their Contract. It is therefore important before a Contract is signed that appropriate legal advice is obtained. Once you know what you are signing up for then you accept the conditions which apply. That may or may not be something you are prepared to accept but it will be a commercial decision for you. If you are a person who is proposing to work in an organisation for a period of years and then move on any clause, in your Contract, relating to Restraint of Trade or restricting competition with the employer you are moving to, or may move to in the future, is one which needs to be seriously considered. A clause that limits you to three months may not be one which is going to get you very worried or any new employer.

Photo by Gabrielle Henderson

A restriction for six or twelve months may impact on your ability to take up new employment. A lot of these cases where an employer seeks to enforce a Restraint of Trade Clause are ones which never go to Court. The claim is made by way of a letter from the employer which will threaten an injunction. In the majority of cases either a compromise is reached restricting you from moving to the other organisation for a period of time or restricting the type of work that you can do there or where the employer with whom you have the signed Contract shows a willingness to go the whole way to Court you may have no alternative but to comply with that restriction because of the cost issues involved in fighting a case. It is normal where such letters issue that they will also issue to the new employer.

If you are signing one of these Contracts you need to be very careful if any clause has a provision in it stating that if you are moving to a new employer you must give the new employer a copy of a particular clause in your Contract which may relate to a Restraint of Trade. Normally these clauses provide for these having to be given within a set period of time prior to you joining any new employer. It can often be that this will be provided to them within a number of days of you tendering resignation or before accepting a Contract from them. These types of clauses in themselves make future employers nervous at times.

A further issue which is now arising is that relating to Confidential Information. Most individuals will accept that Confidential Information will remain in the company. However, these clauses are now being drafted in a way to effectively bring in any information relating to any clients, customers, prospective clients or prospective customers and seek to tie this clause effectively into the Restraint of Trade by restricting all and every type of information relating to such clients being disclosed. That often appears legitimate but the Confidential Information Clauses in these contracts are now being tied back to the Restraint of Trade or Non-Competition clauses in the Contract so as to restrict any interaction with these entities for the restricted period, and, which are often longer than the restrictions on working for a competitor. Equally the Confidential Information in itself will be unlimited in time.

Photo by Benjamin Child

In relation to Proprietary Information again these are now being very widely drafted to restrain the use of any such information. These are not limited to a period if a number of months or even a year. These seek to be unlimited as regards time. Of course, what you are learnt to do is not something that can be restrained. However, the information in relation to the methods of working, how an organisation works, how matters are set up are all issues that can be covered under the issue or Proprietary Information can severely restrict you as a senior executive or senior manager taking up a post in another organisation.

An Employment Contract for a senior executive or senior manager should be regarded as no different than any other commercial transaction. In your role in a senior position in an organising you would be used to dealing with these types of contracts customers, and, clients. Your Contract of Employment must always be regarded as a commercial contract that is going to be applied and that if you leave the organisation those restrictions that are in that Contract will bind you. The reality of matters is that many employers will simply provide documentation on the basis of take it or leave it. It is however important that you know if you are signing a Contract exactly what you are signing. This means that if you are intending to leave the organisation in the future you may need to take this into account before taking up any new employment, Of course many individuals will say to us that they never intended to leave the organisation. The factual reality is now that individuals work for an organisation for a period of time. They may very well change employment. They may even come to change employments later on in their career when they have acquired significant knowledge of a particular type of business. Once you know what you are signing up for at least you can plan into the future if your relationship with the employer is one you wish to terminate or they wish to terminate at a later stage. You will know what you are signing up for. You will know what the effect of it is and you will know if you are in any negotiations with any other entity or business what is or is not something you are allowed do.

The worst thing which a senior executive or senior manager can find themselves in is that they have tendered their resignation, they have accepted a new job, and, they then find that they are receiving correspondence seeking to restrict them going to their new employer.

In our experience we regularly find that individuals come to us, who have never read the Contract in full until they feel they need to which is when an issue arises. The reality is you need to be reading the Contract before any issue arises and before you put pen to paper.

We have the experience of reviewing these contracts. We do so regularly. Of course, there are other Solicitors who are equally able to advise you. What is however important is that you get the relevant information before you sign a contract and that you know exactly what you are signing up for.

We would give one tip. It is that if you see a clause in your Employment Contract that you have been advised to get independent legal advice and you are acknowledging, by signing the Contract, that you have read and understood the contract should raise alarm bells that there is probably some significant restriction. The fact that you have not got independent legal advice will not make it easier for you to challenge the Contract.

Of course, there are going to be Restraint of Trade clauses which are too wide. They may well be unenforceable and void. However, that it a matter that ultimately may end up going to the Courts and as you signed the Contract you may not get your full costs even, when you win. Therefore, as we said, getting advice before you have signed the Contract means you know what you are signing, You may well still decide to sign the contract because of the other benefits which are in that Contract and which you want, Saying this, knowing what the restraints are and the restrictions will make sure that you do not end up in a situation, a number of years down the line, where you are suddenly trying to find a negotiated settlement with an employer whom you notified you are leaving and is now in the process of starting or threatening proceedings against you for breach of contract.

If you require further information please get in touch with Richard Grogan & Associates here.

*Before acting or refraining from acting on anything in this guide, legal advice should be sought from a solicitor.

**In contentious cases, a solicitor may not charge fees or expenses as a portion or percentage of any award of settlement.


Disclaimer: Any views and/or opinions expressed in this post by individual authors or contributors are their personal views and/or opinions and do not necessarily reflect the views and/or opinions of Lawyered.

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Richard Grogan

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