How to protect the employer s interests after the termination of employment contracts aspects of labour law in general and sports law in particular

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How to protect the employer s interests after the termination of employment contracts aspects of labour law in general and sports law in particular Commission(s) in charge of the Session/Workshop: Employment
How to protect the employer s interests after the termination of employment contracts aspects of labour law in general and sports law in particular Commission(s) in charge of the Session/Workshop: Employment Law Commision IBLC Sports Law Subcommission London, 2015 National Report of United Kingdom Hester Jewitt Penningtons Manches Abacus House 33 Gutter Lane London EC2V 8AR Chris Cooper Taylor Wessing 5 New Street Square London EC4A 3TW Clare Hedges Birketts LLP Thirty Station Road Cambridge CB1 2RE Dr. Hans Georg LAIMER, LL.M. (LSE) Rechtsanwälte GmbH Stubenbastei 2 // Entrance Zedlitzgasse 7 A-1010 Wien // Vienna Phone: General Reporters: Dr. Stephan DITTL SALGER Rechtsanwälte PartGmbB Darmstädter Landstraße 125 D Frankfurt am Main Phone: +49 (69) March 2015 INTRODUCTION When signing employment contracts, employers and employees usually do not think about the problems that may arise at the end of such cooperations. However, it is our task as their advising lawyers to protect our client s interests after the termination of such contracts. Therefore we would like to draw your attention on means to protect these interests of employers in general, such as restrictive covenants and garden leave before we will have a look into the world of sports and see how it deals with respective problems. 1. Employment Law What are restrictive covenants? Information is key for the success of every business. Thus, restricting the use of this information by employees after their employment has ended has proved to be vital to protect the business and/or customer contacts. A former employee having insider-knowledge of the prices, technology, market strategy, customer- or client-base is often an attractive asset to a competitor seeking to enter the market and/or enhancing its existing business. In order to provide for a certain level of protection for employers they may want to protect the use of the information vital to their business by post termination restrictive covenants. A contractually agreed restrictive covenant is typically designed to prohibit an employee from competing with his former employer for a certain period after the employee has left the business. Furthermore, it aims to prevent a former employee from soliciting or dealing with customers and or other employees of the former employer by using knowledge of those customers and the business gained during the prior employment. Standard types of restrictive covenants, which are often used by employers, are: non-competition covenant, non-solicitation covenant, non-dealing covenant and non-poaching covenant. Garden leave Another opportunity to increase the impact of a post termination restrictive covenant if lawfully agreed upon - is to agree on a garden leave clause in the initial employment contract. Based on such clause an employer can require an employee to spend all or part of the notice period at home whilst the employee continues receiving the regular remuneration. Thus, a garden leave clause prevents the employee from taking up other employment with a competitor whilst still being employed with the employer. However, it also enables the employee's successor to establish himself and develop relationships with the employee's (former) customers and contacts. A further advantage of such a clause is that whilst on garden leave, the employee is no longer privy to the business confidential information. Additionally, it has to be noted that all information such employees do have will become out of date until the garden leave ends. Finally, at the end of the garden leave period the restrictions resulting from the post termination restrictive covenant may step in and further deter the employee from competing with the business of the former employer. However, from the employee s perspective such garden leave provision contained in the employment contract, if lawfully agreed upon, may prevent the employee from further practicing (and training) his specific occupation. This may be considered a huge disadvantage when it comes to profession, where actively pursuing your occupation is key (e.g. for professional athletes, surgeons, etc.). 2. The Impact of Employment Law on the World of Sports In some kinds of sports, athletes and coaches are employed by clubs or associations, so the rules of employment law apply. However, the world of sports has always the tendency to set their own rules of law, claiming that the regular laws are not suitable for the relationships in sports. Therefore we are interested in learning if the above mentioned means of protection the employer s interests at the end of an employment contract are found in sports employment contracts and/or if there are any special provisions in athlete s employment contracts in your jurisdiction. Transfer Fees Once upon a time, (football) sports clubs and associations have invented the transfer fee system: If a player wanted to switch the club (the employer) after the termination of his contract, the new club had to pay a transfer fee to the former club. The reason for this was mainly that the former club wanted to be compensated for the education and the improvements of the player. This was similar to the situation of normal former employers who do not want their competitors to benefit from the know-how that a normal employee gathered during his employment. This system had to be abolished in 1995 after the judgment of the European Court of Justice in the Bosman case, C-415/93. It was decided that the obligation for the new club to pay a transfer fee after the termination of a player s contract infringe the freedom of movement for workers. Since then, transfer fees may only be claimed in the European Union, if a player wants to switch the club during the term of validity of his employment contract. Therefore the duration of the contract has become an important aspect of the player s contracts. Now, how are these issues dealt with in your jurisdiction? Please find here some useful information for drafting your report. Following these basic rules will ensure consistency among all our reports as well as a convenient experience for our readers. STYLES - There are two different levels of headings you may use. See example below. - Your body text needs to be Garamond, Size If you need to display a list, you may use bullet points or letters in lowercase. - For the use of footnote, you can use the style available here 1. - Headings Heading 1, Font: Garamond, Size 14, Bold Heading 2, Font: Garamond, Size 12, Bold - Body text Read here your body text in Garamond, Size Lists A list can be displayed with letters in lowercase: a. Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore b. et dolore magna aliqua. Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris nisi ut aliquip ex ea commodo consequat. c. Duis aute irure dolor in reprehenderit in voluptate velit esse cillum dolore eu fugiat nulla pariatur. Excepteur sint occaecat cupidatat non proident, sunt in culpa qui officia deserunt mollit anim id est laborum. or with bullet points: Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris nisi ut aliquip ex ea commodo consequat. 1 This is a footnote. Duis aute irure dolor in reprehenderit in voluptate velit esse cillum dolore eu fugiat nulla pariatur. Excepteur sint occaecat cupidatat non proident, sunt in culpa qui officia deserunt mollit anim id est laborum. You can also use indentation to add extra levels to your lists. Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore 1. et dolore magna aliqua. Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris nisi ut aliquip ex ea commodo consequat. 2. Duis aute irure dolor in reprehenderit in voluptate velit esse cillum dolore eu fugiat nulla pariatur. Excepteur sint occaecat cupidatat non proident, sunt in culpa qui officia deserunt mollit anim id est laborum. BIBLIOGRAPHY If you add a bibliography at the end of your report, please use the style below. - Doe, John B. Conceptual Planning: A Guide to a Better Planet, 3d ed. Reading, MA: SmithJones, Doe, John B. Conceptual Testing, 2d ed. Reading, MA: SmithJones, 1997 NAMING YOUR FILE When saving your report, please name the document using the following format: National Report (country).doc . The General Reporter in charge of your session will take care adding the Working session/workshop reference once this is available. Example: National Report (France).doc General Reporters, National Reporters and Speakers contributing to the AIJA Annual Congress 2015 accept the terms here below in relation to the copyright on the material they will kindly produce and present. If you do not accept these terms, please let us know: General Reporters, National Reporters and Speakers grant to the Association Internationale des Jeunes Avocats, registered in Belgium (hereinafter : AIJA ) without any financial remuneration licence to the copyright in his/her contribution for AIJA Annual Congress AIJA shall have non-exclusive right to print, produce, publish, make available online and distribute the contribution and/or a translation thereof throughout the world during the full term of copyright, including renewals and/or extension, and AIJA shall have the right to interfere with the content of the contribution prior to exercising the granted rights. The General Reporter, National Reporter and Speaker shall retain the right to republish his/her contribution. The General Reporter, National Reporter and Speaker guarantees that (i) he/she is the is the sole, owner of the copyrights to his/her contribution and that (ii) his/her contribution does not infringe any rights of any third party and (iii) AIJA by exercising rights granted herein will not infringe any rights of any third party and that (iv) his/her contribution has not been previously published elsewhere, or that if it has been published in whole or in part, any permission necessary to publish it has been obtained and provided to AIJA. 1. Employment Law 1.1. Restrictive covenants Is the principle of A POST TERMINATION RESTRICTIVE COVENANT known in your legal system? If yes, how can this principle be defined? Where does the principle have its origin? (Civil Code, case law, etc) In many UK industries, post-termination restrictions are used widely in senior employee contracts (and some consultancy contracts). As identified in the general reporter s introduction, post-termination restrictive covenants are express contractual terms which limit an employee s activities after his/her employment has ended. They are intended to mitigate the damage caused by ex-employees using their employer s confidential information, trade secrets and the connections with employees/clients and suppliers to compete after they leave. The law governing post-termination restrictive covenants in the UK is founded in our common law system (case law). However, an employer s ability to enforce such restrictions in the UK is heavily influenced by public policy and, in particular, the common law doctrine of restraint of trade. The UK courts take the view that it is in the public interest that employees can move jobs and make use of their knowhow/skills. Covenants that restrain this movement will generally be void and unenforceable. The UK courts will only enforce post-termination restrictive covenants to the extent that they go no further than is reasonable and necessary to protect an employer s legitimate business interests. The legitimate interests commonly recognised by our courts are: the protection of the employer s trade connections (for example, with customers/clients/suppliers); maintaining the stability of the employer s workforce; or the protection of the employer s trade secrets/confidential information. These are all seen by the UK courts as the employer s property. A desire to restrict competition alone is not considered a legitimate business interest in the UK At what stage in the employment relationship between employee and employer are post termination restrictive covenants agreed upon in your jurisdiction? Is there any relevant case law? Employers and employees can enter into post-termination restrictive covenants at any point during the employment relationship. They are commonly agreed at the start of the employment relationship, on a promotion or when an employee leaves the business under a settlement agreement. They can also be introduced in the body of employee benefit arrangements such as option agreements. The timing of when the covenants are agreed can have an impact on enforceability. In the UK the court will apply a 3-stage process for assessing the enforceability of covenants: what does the covenant means when properly construed; whether the employer has a legitimate interest which needs protecting; whether the covenant is no wider than is reasonably necessary for the protection of those legitimate interests - TFS Derivatives v Morgan [2005]. The third stage of the test is assessed at the date the covenant was entered into, not the date when the dispute arises - WRN Ltd v Ayris [2008]. This has important implications for covenants agreed at the start of the employment relationship, particularly if the employee s role has subsequently changed. In PAT Systems v Nelly [2012] a covenant was held to be too wide for the junior position the employee held when he entered the contract. The fact that the employee was later promoted to a more senior role made no difference to enforceability. If the employer had intended the covenant to apply to the more senior role, it should have restated the covenant unequivocally. If covenants are repeated in a settlement agreement on termination, their reasonableness will be judged at that time they are repeated. As public policy is in favour of settling disputes, our courts are generally less willing to say that covenants in a settlement agreement are unenforceable. Employees will also have taken independent legal advice on the terms of a settlement agreement. So, a court may be more inclined to take the view that there is equality of bargaining power Once the employment contract is signed, is there a general obligation of non-compete also in the absence of an express agreement after the termination of the employment? Are there specific statutory provisions or precedents referring to this? Could whistle blowing be regarded as a part of the employee s post termination restrictive covenant? There is no general obligation not to compete during the employment relationship or after it terminates. However, employees are bound by the implied duty of good faith and fidelity (Faccenda Chicken Limited v Fowler [1986]) which provides some protection against competition at least during employment. The duty ends with the termination of the employment relationship so express restrictive covenants are generally required to restrict competition after termination. The duty of fidelity is a duty to provide honest, loyal and faithful service whilst the employment contract is in force. Put simply, the employee must not put himself in a position where his duty to his employer and his own interests conflict. In certain circumstances, the duty will therefore oblige employees, during their employment, not to: compete; take steps to compete after employment; solicit staff or clients; or use/disclose the employer s trade secrets or confidential information. However the scope of the duty is not fixed. It depends on various factors including the nature of the role, the seniority of the employee, the industry and the express terms of the contract. The following principles regarding competition during employment can however be taken from the authorities. During employment: an employee may not compete with the employer during working hours (which is likely to be a breach of both the express terms of the employee s contract regarding working hours as well as the duty of fidelity); an employee may not compete with the employer during their spare time if the activities will inflict substantial harm on the employer. The case law suggests that this aspect of the duty applies to different classes of employee in different ways. At one end of the scale are the employees for whom the type of work makes competition inappropriate i.e. skilled/experienced workers who hold confidential information. In Hivac v Park Royal Scientific Instruments Ltd [1946], five skilled manual workers breached the duty of fidelity when they worked in their spare time for their employer s competitor. At the other end of the scale are manual workers who the courts have held are free to compete in their spare time. In Nova Plastics v Froggatt [1982] - the court held that an odd job man was allowed to work for a competitor outside working hours. employees may not, in certain circumstances, even take steps to compete with their employer after termination. The authorities draw a line between preparatory steps during employment (which are allowed) and active competition during employment (which is a breach of the duty of fidelity). It is often a difficult distinction to make out. Buying an off the shelf company, arranging premises and finances will not be in breach of the duty of fidelity (Balston Ltd v Headline Filters Ltd [1987]). Neither would an indication of an intention to compete provided that competition does not take actually place see Laughton and Hawley v Bapp Industrial Supplies Ltd [1986]. employees may not solicit other staff to join a competing business. However, the employee can take preparatory steps to do so. In Tithebarn Ltd v Hubbard EAT 532/89 Mr Hubbard told a colleague of his intention to establish a competing business and invited him to join the new business. The court held this was not in breach of the duty of fidelity- it was merely a preparatory step. By contrast, in Marshall v Industrial Systems & Control Ltd [1992] Marshall drew up a business plan for a competing business and approached another employee to join him. This was a breach of the duty of fidelity - there was a concrete plan to compete in place and to poach an existing client. employees must not use confidential information or trade secrets for their own benefit. However, after employment, the duty of fidelity only prevents use, disclosure etc. of information that amounts to a trade secret. That said, the duty of fidelity can be used to prevent an ex-employee using confidential information that was acquired during employment but used after employment to compete with the employer. This is known as the springboard doctrine. Ex-employees are not allowed to use confidential information (such as customer lists) at the expense of their former employer to gain a competitive advantage which would include competing with their ex-employer or soliciting customers etc. An employee s right to blow the whistle in the UK is, in a sense, a carve-out from any post-termination confidentiality obligation implied or express. Provided that any disclosure made by the employee meets the test of a protected disclosure set out in the Employment Rights Act 1996 ( ERA ), any express contractual term which tries to waive the employee s right to make such disclosures ( gagging clauses ) will be unenforceable Section 43J(1) of the ERA. In the UK, the balance of the public interest falls in favour of the employee when it comes to their right to blow the whistle, as many high profile NHS cases have highlighted. Whilst the duty of fidelity provides some protection from competition during employment, the scope of the duty is often uncertain. Employers in the UK normally opt for the certainty of express contractual clauses clarifying the employee s obligation not to compete/use confidential information i.e. restrictive covenants that appl
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