If you have any questions for Money Marketing's legal surgery, please email them to firstname.lastname@example.org.
Please note that neither Money Marketing nor our legal correspondent can accept any liability for answers given to queries
Employers are sometimes faced with the problem of how to stop unfair competition from former employees when they leave.
Clauses that prevent employees working for competing businesses for a set time have often been difficult or costly to enforce. A much easier route has been to put employees on “gardening leave” during their notice period. This can only be done if there is a suitable clause in their contract.
It is widely thought the employee will be unable to work for a competitor during the period of gardening leave because the employer is continuing to pay for its terms and conditions and the employee has an implied duty of fidelity.
However, this has been brought into question as a result of the recent case of Symbian Limited v Christensen. This case concerned an employee of a computer software manufacturer who accepted a job with Microsoft to sell software.
There was no competition between Symbian and Microsoft over the type of software that Christensen was to sell. However, his contract of employment provided that, while he was with the company, he would not work directly or indirectly or be interested in any capacity, in any other trade or business or occupation other than the business of the Symbian Group, whether or not that would involve a competitor organisation.
The Court of Appeal held that the employer was entitled to restrict the post-employment activities of Christensen for a period of six months. However, it was entitled to do so only in a limited way. The court decided that putting the employee on gardening leave terminated the employment relationship although there was a continuing contractual relationship. The result was that the imp-lied duty of fidelity ceased and, unless there was a specific contractual clause stating that he could not work for a competitor, the employee was able to do so, even during the period of his gardening leave.
Symbian sought an injunction to prevent Christensen from working for Microsoft during his six-month notice period. The court concluded that the post-employment restraint clause was too wide to enforce as it prevented Christensen from working at all. However, the court considered that Symbian's fear of harm was legitimate in this instance, so it restricted the injunction to work carried out for Microsoft.
While this decision is questionable, employers seeking to rely on gardening leave clauses should nonetheless be sure to include an express contractual provision that employees do not work for others throughout the duration of the contract of employment. The constituent parts of the implied duty of trust and confidence should be expressly referred to in the contract itself or a staff handbook.
The whole point of the gardening leave clause is to prevent the employee not only from turning up to their usual place of work but also from turning up to work for a competitor. These clauses now need to be examined very carefully. Symbian was very lucky in its case because although it did not have a specific clause saying Christensen could not work for a competitor during his notice period, it did have another clause which said he could not work for a competitor during the continuance of his employment contract. Therefore, the court allowed an injunction to prevent him from working for Microsoft.
It is worth bearing in mind that, after the gardening leave clause is over, it is possible that a suitable clause for a restrictive covenant could continue to bite, preventing the employee from working for a competitor for a reasonable period after the end of the gardening leave. In the Symbian case, unfortunately, the two clauses overlapped.
A great number of financial advice practices do not consider contracts for advisers a key element in business planning. But the need to protect yourself against what can be a devastating blow to a business is crucial. Key elements specific to financial services that need to be included are:
Handling of professional indemnity claims.
Transfer of renewal commission on termination.
Lapse pool provision.
Key performance indicator targets.
An employer should ensure clauses are properly thought about when first employing an employee and on subsequent promotions. They should only be drafted to what is reasonable in the circumstances and must be as precise as possible. It is perfectly possible to have reasonable protection against unfair competition if the clauses are carefully planned.
Gareth Fatchett is principal at financial services lawyer Armstrong Neal Financial Solicitors and a director of ProAct