Will Restrictive Covenants be Enforced by a Court?

Author:
Aneil Balgobin
Partner, Head of Employment Law
Date:
03/05/2019

In employment law, a restrictive covenant is a clause or set of clauses in a contract of employment which sets out restrictions which will apply to an employee after their employment has ended. Restrictive covenants in employment contracts can be enforced by English Courts on the basis that they represent what the parties agreed in a contract.

The enforcement though will also be on the basis that the covenants must be reasonable to protect the legitimate business interests of the employer, and in terms of the time period and the area covered.

So, for example, a restrictive covenant not to compete anywhere in the UK for 12 months after employment has ended might be difficult to enforce, but each case will be judged on its own facts.

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Restrictive Covenants in Employment Contracts

There are several common types of restrictions, such as:

      • An agreement not to compete with the employer’s business
      • An agreement not to seek work from existing customers
      • An agreement not to poach work colleagues

Most restrictive covenant clauses in contracts of employment are drafted to permit amendment to the clauses if a Court considers that a slightly alternative version is more reasonable. Restrictions are usually drafted to be in force for a particular period of time, for instance, 6 or 12 months.

Restrictive covenant clauses can also be drafted to cover a certain geographical area, so a departing employee can’t set themselves up in competition with the company they have left.

What Can a Court Do?

Let’s say an employer has a sales manager who sells carpets, who covers the north of England and has agreed to the following restrictive covenants in his contract of employment:

        • Not to compete with the company anywhere north of Birmingham for 12 months after termination of employment
        • Not to approach customers who have ever been customers of the company for 12 months after termination of employment
        • Not to poach customers specifically dealt with by the employee during the 12 months prior to termination for 12 months after the employment contract ends
        • Not to poach staff from the company for 12 months after termination of employment

A Court would take into account that carpet selling is a work area very likely to already involve extensive competition, and the employee will be entitled to earn a living in their chosen field. Subject to the facts, the company is likely to achieve some protection, but the restrictions proposed above are unlikely to be accepted in full as being reasonable. Why?

          • The proposed general non-compete clause is unreasonable. 6 months might be deemed more reasonable and limited to the employee’s work area
          • The proposed general customer restriction is unlikely to be accepted as reasonable
          • The proposed restriction on the employee’s specific customers is more likely to be reasonable, but 6 months would be more likely to be accepted by a Court
          • A non-poaching clause may be reasonable depending upon the specialised nature of any work undertaken by co-workers, but 12 months is probably unreasonable, so 6 months might be preferred.

Of course, specific restrictive covenant cases in employment law will turn on their own facts, but if in doubt, it’s crucial to take early legal advice from an Employment Solicitor about contract terms and alleged breaches of restrictive covenants.

But remember, enforcement of restrictive covenants can require urgent legal action and Court proceedings to seek an Injunction.

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