What are Post-Employment Obligations?
A post-employment obligation is a requirement that starts at the termination of an employee or contractor’s engagement with a business. These obligations are typically set out in the employment agreement, enterprise agreement or other agreement between an employer and their employee. Post-employment obligations can be agreed upon at the commencement of employment or during employment. The restraints must be agreed to by the employer and the employee.
Why does my business need Post Employment Obligations?
Post-employment obligations should be tailored by the employer to meet the specific interests applicable to the business. General restraints that prevent competition are generally not looked upon favourably by courts. The restraints may be tailored by altering the context of the obligations themselves, the duration of the obligations or the distance in which the obligations apply. The most common examples of post-employment obligations include:
- Restraint of Trade,
- Confidentiality, and
- Intellectual Property.
What is a Restraint of Trade clause?
A popular post-employment obligation is a restraint of trade clause which may apply during the period of employment or post-employment. The restraint works to prevent a previous employee from competing against the company. This may include clauses to prevent a previous employee from:
- Working for a competitor,
- Starting a competing business,
- Soliciting clients, employees, contractors, and suppliers.
Do I need an employment lawyer to help draft a Restraint of Trade clause?
It is imperative employers draft detailed restraints to prevent their employees from working for a direct competitor in the same area for which they previously worked or using your client lists or trade secrets.
The existence of a restraint of trade in an employment contract does not mean the restraint is valid. As a general rule, restraints are not held to be valid unless an employer can show why the restraint is reasonable in the circumstances. The more detail which the employer places in the restraint can often lead to a court concluding the restraint is reasonably necessary. You should have your employment contracts drafted by an experienced employment lawyer should you wish to restrain your employees following the conclusion of their employment.
What if I don’t have a post-employment obligation? Are employees still restrained from certain actions?
If an employee does not have a restraint clause in their employment contract, they may still be prevented from taking certain actions either during or after their employment. The Corporations Act 2001 prevents a director, other officer or employee (or someone that previously held this position) from improperly using information they have obtained due to their position in the company, to gain an advantage for themselves or someone else, or cause detriment to the company.
A claim made under the Corporations Act may be made either independently, or in addition to a claim which contains restraints under an employment contract. It is advisable that you still have restraints in your employment contract, but if there is no restraint for whatever reason, there may be recourse for a claim under the Corporations Act.
Is my post-employment restraint enforceable?
For an employer to satisfy the court that the restraint is enforceable, it must establish two things:
- That the employer is protecting a legitimate business interest; and
- The extent of the restraint is reasonably necessary to protect that business interest.
The business interest can be a commercial interest (protection of confidential information) or goodwill of the business.
A court may look at the terms of the restraint and read down what is placed in the contract or alternatively, remove the restraint entirely to ensure it does not go beyond public policy. This is why you will often see a number of different restraint times and locations placed in a contract as it allows the court to amend the contract to a lesser restraint it considers to be fairer to the parties.
What is a post-employment confidentiality clause?
Throughout the duration of employment, it is inevitable that employees will receive access to confidential information. This includes any information that the law or a contract deems to be confidential in nature.
Due to the requirement for employers to ensure the protection of their information, most employment contracts will include a confidentiality clause to restrict an employee from disclosing confidential information gained through their employment. Confidential information typically listed in an employment contract or enterprise agreement includes:
- Business plans or strategies,
- Marketing plans,
- Company procedures,
- Employee details,
- Financial information,
- Company supplies, and
- Client details.
A confidentiality clause may not be a non-negotiable clause as some aspects of confidentiality may still be restrained under the Corporations Act. This may be the commencement of action for a breach of confidence against previous employees if the information was:
- Confidential and not available to the public,
- Communicated in a confidential manner,
- Identifiable information, and
- At risk of actual or potential misuse.
What is a post-employment Intellectual Property clause?
Due to the increasing use of digital systems, most employment agreements will include a clause in relation to intellectual property. This clause often states the business owns all rights to intellectual property created by the employee or contractor throughout the duration of their employment or engagement. Therefore, should a previous employee still hold intellectual property from a previous employer, it will ordinarily be requested to be returned to them. Failure to return intellectual property could lead to the employer commencing court proceedings against the employee.
What happens if you breach post-employment obligations?
In the instance of a breach of post-employment obligations, the employer may seek legal action against the previous employee for breach of contract, request an injunction or seek damages for any loss suffered by the business as a result of a breach in post-employment obligations.
We are here to help
The team at Fourtree Lawyers understands it can be a confusing time where assistance is required to get through this difficult and lengthy process. Our team at Fourtree Lawyers have extensive experience in dealing with post-employment obligations and would be more than happy to assist.
Whether you are an employee facing the wrath of a former employer for ignoring a post-employment obligation or an employer whose business could be damaged by the actions of a former employee contact our office on 1300 529 444 to discuss your matter further with one of our experienced lawyers.
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