Golden parachutes and gagging: new ways of ending the employment relationship

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Attitudes to relationships have shifted over time and the concept of a lifelong marriage has been replaced with the reality of multiple relationships. A similar shift has taken place in the employment relationship.

A ‘job for life’ is not the experience of the majority of today’s workers. More employers are thinking ahead to a possible break up and rewriting contracts accordingly. While some parts of these employment 'pre-nuptial' agreements are now completely standard, such as requiring the return of company property on departure, others are newer and more exotic.

‘Gagging’ clauses

Of particular concern are restrictions seeking to dictate what an employee can and cannot say about his or her employer. Such clauses are becoming increasingly desirable in business sectors where reputation is at stake, including financial services and luxury brands. Putting these conditions in place at the start of the relationship may be preferable to inserting them reactively at the end when large sums of money are often changing hands for other reasons.  

'Gagging' (or 'privacy') clauses in a contract generally apply during working life (with breach being a ground for dismissal) but can be indefinite. In theory, they could be enforced a long time after the employment relationship ends, effectively giving the employer an easy alternative to a defamation claim. Defamation laws don’t usually apply to opinion and comment, so a wider contractual restriction could prove valuable.

Employers are making privacy clauses increasingly prescriptive and detailed. This ensures employees know from the outset how they are expected to behave and gives the company a more obvious remedy if workers don’t play ball. The challenge for employers is ensuring that they are not drafted so widely that they are hard to comply with. Rather than simply stating that the employee cannot make derogatory statements or discuss their employment, clauses are starting to target certain types of activity, such as giving speeches or publishing comments on social media websites.

Online control

Prudent employers are looking to take contractual control of their employees’ online presence. They hope to prevent (amongst other things) the inadvertent disclosure of confidential information and identity of clients. 

Contracts may require an employee to agree to delete work contacts when they leave or not to stay connected with the company. Failing to update a LinkedIn profile that shows your current place of work – a very common oversight – can be in breach of such a clause.

Employers may want to go further and claim ownership or access to an employee’s social media contacts. Networks can be a significant asset for staff to take to new companies so employees usually want to keep access to contacts. If an employer agrees to this they need to ensure that post termination restrictions are carefully drafted to narrowly define which clients may be excluded from the restrictions.

Money, money, money

Other popular, non-standard clauses in employment contracts deal directly with financial matters on termination. These are known as ‘liquidated damages’ clauses or ‘golden parachutes’. It’s wise for both parties to agree at the outset what will be paid upon termination. From the employer’s perspective, agreeing to these payments enables them to swiftly end employment, hopefully without extensive negotiation.

As with a divorce, at the end of a working relationship the parties will be keen to protect their assets and avoid unnecessary spending on legal disputes. Investing in a well drafted ‘pre-nup’ style employment contract can ensure a happy marriage for employer and employee and a less painful break up.

Emma Sanderson is a partner at law firm Withers; Libby Payne is an associate at Withers

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