Restrictive Covenants

Restrictive covenants are an important tool for most businesses seeking to limit the spread of their trade secrets and good will by ex-employees. A common example would be the desire to prohibit an ex-employee from soliciting a business’s customers.

Post-employment restrictions are, however, generally void to start with. The position changes if the clause is intended to protect the legitimate business interests and does not extend beyond what is reasonably required to protect those interests. The clause must be shown to not just stifle lawful competition.

Restrictive covenants therefore need to be carefully drafted, as a widely written clause is unlikely to satisfy the test of reasonable requirement. For example, a clause stipulating that a person should not be employed by anyone within a particular industry will almost certainly fail. Additionally, a clause restricting contact with all a business’s clients/customers will also be likely to fail as this would cover future clients/customers thus failing the reasonableness test.

This entry is intended as general information only, but should you require legal advice on the issue please contact us by accessing the following profile page on the ISOLAS website http://www.gibraltarlawyers.com/people/Karl%20Tonna.

Laws of Gibraltar (a couple of important links)

Employment Act http://www.gibraltarlaws.gov.gi/articles/1932-16o.pdf

Employment Regulations 1994 http://www.gibraltarlaws.gov.gi/articles/1994s023.pdf

Does a worker from the UK who comes to Gibraltar for a week (or such other short period) to work in your office require an ETB permit?

This depends on the type of task to be performed, the relationship between companies and other matters. It is always advisable to first check with the ETB.

Such a worker could in certain circumstances be considered a detached worker (defined as a worker not ordinarily resident in Gibraltar, in employment in a country outside Gibraltar, and required by his employer to perform work of a temporary nature in Gibraltar in the course of his employment).

The local provisions stipulate that where a detached worker is an entitled worker, the employer shall notify the ETB no later than five working days before it is proposed that the detached worker commence temporary employment in Gibraltar. This is the employer who is based outside of Gibraltar.

There is a fee, and written details must be provided to satisfy the ETB that the detached worker is employed in the state of establishment of the employer and has the benefit of the relevant provisions in that state in respect of industrial injury insurance and medical expenses.

If the employer allows the detached worker to perform work in Gibraltar prior to receiving written notification from the ETB, both the employer and the person to whom that employer is providing a service to, shall be guilty of an offence.

Redundancy & Maternity Leave

When it is impossible for a woman on maternity leave to have her job back because of redundancy, the employer is obliged to offer her alternative work if there is a "suitable available vacancy" (Maternity & Parental Leave Regulations).

If there is no alternative suitable available vacancy the woman will be entitled to statutory redundancy pay or unfair dismissal compensation under normal rules.

Other workers, whose positions are also being made redundant, do not have similar statutory entitlement to be offered alternative employment.

Which Termination Related Payments are Tax Exempt?

The Income Tax (Allowances, Deductions and Exemptions) Rules http://www.gibraltarlaws.gov.gi/articles/1992s016.pdf provide that the following types of income shall be tax exempt:

· compensation for unfair dismissal awarded by an industrial tribunal;

· agreed compensation for unfair dismissal which the Commissioner of Income Tax considers would have been awarded by an industrial tribunal if it had ruled upon the matter;

· such sum paid upon redundancy which the Commissioner considers to be appropriate (to include consideration of the employee’s length of service and rate of pay)

· sums received on retirement, other than retirement benefit scheme payments, injury or death gratuities, or consolidated compensation for death or injury; and

· sums paid in lieu of notice which the Commissioner is satisfied is the only form of compensation paid upon the redundancy of the employee.

Compromise Agreements and the Tax Office

I was asked about the Income Tax Office requesting full details on a Compromise Agreement and whether they must they be given.

Presumably the Commissioner had requested full details in response to a request for confirmation that he consider a sum to be appropriate for the purposes of making it tax exempt. The Commissioner is therefore entitled to request that information.

Provision for the disclosure of the agreement to the relevant authorities should therefore be made in the contract itself so that the employer does not breach any conditions in doing disclosing to the Commissioner.

Redundancy and Unfair Dismissal Formulae

I was asked during the seminar where the formulae for calculating redundancy payments and the maximum sum awardable in unfair dismissal cases can be found.

Redundancy:

Conditions of Employment (Redundancy Pay) Order (s.4) http://www.gibraltarlaws.gov.gi/articles/2001s064.pdf

Unfair Dismissal:

Industrial Tribunal (Calculation of Compensation) Regulations (Sections 2 & 3) http://www.gibraltarlaws.gov.gi/articles/1992s050.pdf