What are Restrictive Covenants in Employment Contracts?

Restrictive covenants in employment contracts are clauses that restrict what you can do after a period of employment has ended.

Restrictive covenants are often used as a safeguard by employers to prevent departing members of staff from joining a rival company, poaching staff or taking customers with them to their new job. As a result, employers can protect their commercial interests and ensure they don’t lose customers or clients if a member of staff moves on.

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Restrictive Covenant Disputes

Restrictive Covenants in employment can sometimes lead to legal disputes, particularly when an employee leaves on bad terms. For instance, an employee may seek to take customers with them to their new role (as a means of impressing their new employer). For obvious reasons, an employer will want to take action against the individuals by enforcing the Restrictive Covenant.

A Restrictive Covenant must therefore be very carefully worded, so both parties fully understand what it entails and what each clause actually means.

Types of Restrictive Covenants in Employment

Non-Competition Covenants – Sometimes called “non-compete clauses”, these typically seek to prevent departing employees joining a direct competitor in a similar role within a certain period of time.

Non-Solicitation Covenants – These seek to prevent employees who are leaving from getting in touch with contacts, suppliers and customers of their employer, usually for a set period of time after leaving. Employees may also be prevented from dealing with business contacts even if the other party makes the first approach.

Non-Poaching Covenants – These are designed to stop employees actively trying to take colleagues with them to their new place of employment.

A Restrictive Covenant may also include limits on the geographical area in which a person is allowed to work. For example, the contract may state that a person isn’t allowed to set up a business in the same industry within a certain radius of their registered address.

Can a Restrictive Covenant be Challenged?

A Restrictive Covenant is likely to be upheld by a Court if an employer can prove it is “reasonable” and necessary to protect their business and its interests. However, the definition of reasonable is subjective, so a Court might not uphold a Restrictive Covenant if it seriously impinges or restricts an individual’s ability to obtain employment elsewhere. Restrictive Covenants should be proportionate in this regard and should not go any further than is necessary to protect an organisation.

For example, if a person worked for a company based in a highly populated city and they are barred from setting up a new business in a certain radius of that city, this Restrictive Covenant may be deemed to be unfair. Or if a Restrictive Covenant says a person can’t deal with any previous customer or client for an indefinite period after their employment has ended, this may be too wide-ranging to enforce.

Restrictive Covenants must therefore be drafted very carefully, so they reflect an individual’s specific circumstances and their role within a business. That means a person at a more senior level might have tougher restrictions in their contract than a person at a lower level.

Furthermore, precise definitions of certain terms may be needed. For instance, does “client” mean any existing customer of a business, or just the ones that an employer has closely worked with during their tenure?

How Long Should Restrictive Covenants Last?

Restrictive Covenants most commonly last for a period of 6 months. However, this does not mean to say that you should ensure that your covenants do last for this period. Each employer is different and in certain circumstances a shorter of longer period may be justified. The Courts will assess each case on its own facts. It is therefore important to create a balance between protecting your business and ensuring that your Restrictive Covenants have some legal weight.

For a review of your employment contract and advice on whether Restrictive Covenants can be legally enforced, get in touch with our Employment Solicitors. Our specialist team has acted on behalf of employees in Restrictive Covenant disputes many times and will tailor our approach to each person’s specific needs and circumstances.

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