Job mobility and employee human capital - To what extent can the employee be restrained by post-contractual restrictive covenants? An analysis of the common law principles with special consideration of New Zealand

Abstract

In times where employment relationships become increasingly “volatile”, employers try to impede the mobility of their departing employees and capture the human capital they have generated during the former employment. In the absence of express restrictive covenants, the ability to do so is rather limited and therefore post-contractual restrictive covenants have become a common feature of employment contracts. More recent case law in common law jurisdictions suggests a creeping expansion of the use of restrictive covenants. Increasingly imaginative employers constantly push the boundaries of the law by advocating new forms of restrictive covenants and new types of protectable interests. The law on post-contractual restraints of trade is no longer restricted to the “classic forms” of non-compete clauses or non-solicitation agreements which purport to protect trade secrets or customer connections. So called non-poaching clauses that are designed to protect the “stability of the workforce” have emerged and have been accepted by the courts. In addition, employers make use of more sophisticated legal tools such as “garden leave” provisions or “indirect” restrictive covenants such as “profit-sharing agreements”, “clawback” and “forfeiture” provisions or “repayment of training costs” clauses to restrain departing employees. In this thesis, the common law principles governing the use of these covenants are outlined with special reference to New Zealand.