Settlement Agreements and Post Termination Restrictions

Post-termination Restrictions (also called Restrictive Covenants)

My settlement agreement introduces new post-termination restrictions stopping me work for a competitor and requiring me to handover all of the information about my LinkedIn contacts and then delete them from my account. I’ve checked my employment contract and there’s no restrictions in there. I’m happy with the financial terms but I’m worried the restrictions will mean I can’t get another job for a while. Any advice?

You do not have to accept the proposed terms of the settlement agreement.  More often than not the terms of a settlement agreement, which are initially proposed by an employer, are open to negotiation.  Your employer has a vested interest in getting the terms of the settlement agreement agreed because otherwise it would not have been proposed in the first place.

If you have serious concerns that the new post-termination restriction, preventing you from working for a competitor, will stop you getting a new job, then you could request that this clause is removed from the settlement agreement or perhaps modified.  A reasonable modification may be that you are not prevented from working for a competitor but you cannot endeavour to entice away or even deal with your employer’s clients/customers for a fixed period.  This proposed amendment would provide your employer with the comfort that its business interests are protected but will not limit where you can work in the future.

Similarly you can request that the clause relating to you handing over your LinkedIn contacts and deleting them from your account is removed from the settlement agreement.  

Ultimately, you can request the removal of these clauses and your employer can either grant or refuse your request.  If your employer refuses to remove the clauses, then you have to assess whether this is a deal breaker for you.

You have to remember that if your employer refuses to amend the terms and you are not prepared to sign the settlement agreement as worded, then you will remain an employee and effectively the deal is off.

In the event that your employer refuses to remove the new post-termination restriction, preventing you from working for a competitor, and you choose to accept the deal, you should make sure that a nominal payment (i.e. £50) is assigned to the fresh obligation.   If not, there is a risk that HMRC may decide that some or all of any tax free payment, which you are receiving as compensation for the termination of your employment, is being paid in consideration of this new obligation, which may render it taxable.

By Solicitor Darren Tibble

IMPORTANT: The contents of this page are for guidance only and do not constitute nor are they intended to be legal advice.

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