In the last webinar in our series on the employee lifecycle, Employment Associate Chris Dobbs looked at post termination issues, obligations and restrictions.
This is the summary of that webinar. You can watch it back below, or read on for the summary.
What are post termination obligations?
Post termination obligations are the requirements set out in an employment contract that an employee must follow after their contract is terminated.
For example, an employee may be required to return all company property, such as computers, phones etc.
Another common obligation is for employees to stop advertising their association with the company, by changing their listed employer on LinkedIn, for example. This can be crucial to reduce the risk of senior staff in particular jeopardising the business’ reputation.
All post termination obligations must be outlined within the employees’ contract and can also include how the employees exit from the company will be announced internally and externally.
Related: How to write strong employment contracts
What issues can arise with post termination obligations?
An employee may dispute the return of company property. Training certificates and company vehicles for example, can be a sticking point. Staff who work from home, in particular, may have a large amount of company property at home.
In addition, long serving members of staff may have bought tools with them when they started that have since been replaced. For example, an employee’s own mobile phone may have been replaced with a company-owned mobile, that the employee may feel they own.
Disputes can surface quite easily at this stage, so it’s important to be clear as to who owns any property at the time of purchase throughout a staff member’s employment.
Related: Resolving workplace disputes
Final pay
Employers must pay employees their full salary up to the date of termination. Furthermore, they must be paid for any unused statutory holiday entitlement that they’ve accrued.
It is also important to consider any other contractual elements which an employee may be entitled to. For example, any bonus provisions or statutory holiday, where appropriate.
Benefits do not automatically accrue during the period that would have been served as notice if you make a payment in lieu of notice. However, this may vary with the contract and you should always ensure the contract allows a PILON in the first place.
When can I withhold an employee’s final salary?
There are limited situations where the employer has a right to withhold part of final pay from an employee, these include situations where:
- The employee has breached their contract.
- The employee is subject to statutory or other lawful deduction such as student loans and/or pensions.
- There has been excess damage to property.
- But this must be expressly set out within their contract.
- Correcting an employee’s overpayment during their term of employment.
- However, this cannot cause hardship to the employee. For example, if they were paid double their wage the month before you may not be allowed to just not pay the employee the following month.
Related: Dismissals & Tribunal Claims
What are post termination restrictions?
Post termination restrictions are a set of conditions which an employee must not breach after termination.
Restrictions can include:
- Non- Compete – Restricting the employee from working for a competitor, within a certain period of time.
- Non-Solicitation clause – Restricting an employee from enticing, soliciting or endeavouring customers to take up services elsewhere.
- Non-dealing – Preventing employees from having any dealings with certain customers or key employees after leaving.
- Non-Poaching – Prevents an employee from endeavouring, soliciting or enticing staff members to leave and work for another company.
Post-termination restrictions are purely contractual so may not apply to all employees, and some staff may have more imposed on them than others (senior or highly paid staff, for example).
Are post termination restrictions enforceable?
Post termination obligations and restrictions are unlawful by default, as they are a restraint of trade.
However, they can be used by an employer if they are ‘reasonable’ and protect a legitimate business interest. The legitimate business interest must be defined by the business and can include your client base, intellectual property and finances.
When ascertaining how reasonable a restriction is, there are a lot of considerations. Location, for example, is important, as its probably unreasonable to prevent an employee from working in the same sector nationwide, especially if you operate in a small town.
You’ll also need to consider which staff members have which restrictions (perhaps based on seniority), who is reasonably considered to be a competitor, and what would be a reasonable period of time to impose the restrictions.
What to do if someone breaches a post termination restriction
If an employee breaches a post termination restriction, it could be argued that the employee has breached their contract.
In such cases, you might choose to pursue a financial loss claim. However, this might not be worthwhile, if the financial loss incurred is less than the cost of pursuing the claim.
If the financial loss is small, but a business interest has been damaged, you might wish to seek an injunction. This way, a court will formally recognise the breach of contract and direct that the former employee not to carry on their behaviour. Injunctions like these, however, are rarely granted and are considered quite extreme to impose.
What do you put in an employment reference?
You don’t have to provide a reference for an employee, unless you are required to according to some regulatory requirement related to your profession.
If you do provide a reference, it should:
- Confirm an employee’s dates of employment & job title,
- Express that you have no liability in connection with any decisions made off the back of the reference,
- Be truthful (even if you’re providing negative feedback).
Although references are confidential and are excluded from any subject access request, there is no guarantee that the recipient of a reference will not disclose its contents, or the contents of any verbal follow-up you give, to the employee. So bear that in mind.
Can an employee claim discrimination after employment?
Section 108(1) of the Equality Act sets out the specific principle of post-termination discrimination and there are some situations which create a risk including:
- If, after an employee has been dismissed, they are refused the right to appeal.
- If an employee is refused post-termination benefits, when others aren’t.
- If an employer refused to provide a reference due to a discrimination claim or due to an employee’s protected characteristic.
Under Section 27 of the Equality Act it can also be argued that some of these examples are forms of victimisation. Other discrimination claims may also arise.
Related: Discrimination & Equality – Unlawful Conduct
Upcoming Events
This is the summary of our latest online webinar and the last in our employee lifecycle series. However, we will be returning with a new monthly series starting in February.
You can also find recordings, slides and summaries of previous webinars here.
Employment & HR Solicitors
Our bright Employment Team has a vast experience in advising employers in cases of all kinds.
We’d be happy to provide tailored advice, assist you in implementing post termination restrictions and help you mitigate any claims at this stage.
You can call us on 01202 499255, or fill out the form at the top of this page, for a free initial appointment.
We also offer tailored courses for new and experienced employers and HR professionals alike, which may be useful to you. You can find out more here.
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