Restrictive covenants are complex contractual conditions and can have significant consequences for employees and their employers if they're breached. That's why it's essential for both employers and employees to understand the role of restrictive covenants and how they can impact their future.
What Is A Restrictive Covenant?
A restrictive covenant is a term within a contract that seeks to prevent an employee from undertaking certain actions after the termination of their employment. Restrictive covenants normally operate in conjunction with obligations relating to confidential information.
Restrictive covenants can usually be found in an employee's contract of employment. But, they can also appear in other contractual documents that an employee might sign during the course of their employment.
What Can Restrictive Covenants Cover?
Restrictive covenants are used to protect an employer's legitimate business interests and they're usually designed to stop an employee from causing damage to the company after they leave.
Common restrictive covenants will seek to prevent ex-employees from:
- Soliciting the business of their ex-employer's clients
Non-solicitation clauses restrict or stop an employee from contacting their ex-employer's past, present, or even prospective clients for the purposes of selling them a service or product once their employment has ended
- Poaching staff from their former employer
Clauses of this type seek to stop employees from taking their colleagues with them when they start working for a new company or set up their own business
- Directly competing with your former employer
These clauses seek to prevent employees from starting businesses in the same industry or taking a new job with a competitor. Commonly known as 'non-compete' clauses, restrictive covenants are limited by a time period and a geographical area
What Should A Restrictive Covenant Include?
Generally speaking, restrictive covenants must deal with a number of issues if they are to be enforceable. The following should be made clear:
- The reason for the restrictive covenant, in terms of the legitimate business interest it is designed to protect
- The scope of the restrictive covenant, namely the duration of the covenant and the geographical locations in which it applies
- The exact terms of the covenant. For example, if the word 'client' is used then the contract must give a clear definition of a 'client'
What Constitutes A Breach Of A Restrictive Covenant?
If an employee performs any of the actions prohibited by a restrictive covenant, they'll most likely be in breach of their contractual obligations. For example, an employee might be subject to a restrictive covenant that stops them from soliciting the business of their old employer in the UK, for a period of 3 months. If the employee decides to set up a new company in the UK within 2 months of them leaving their previous job, and take several clients from their ex-employer with them, they'd be breaching the conditions of the covenant.
What Happens If An Employee Is Accused Of Breaching A Restrictive Covenant?
When a former employer discovers a breach of a restrictive covenant, they may decide to take legal action. This can be catastrophic for the ex-employee's career and might also have a significant impact on their finances.
An employer could make an application for an injunction, forcing the ex-employee to comply with the restrictive covenants. Accordingly, it will become extremely difficult for the ex-employee to make a living.
Legal costs are a significant factor in these kinds of disputes and any employee trying to defend an injunction application is likely to be left with a large legal bill.
Any employee who is accused of breaching a restrictive covenant should speak to a legal expert at the earliest possible opportunity in order to minimise their losses.
What Renders A Restrictive Covenant Unenforceable?
Restrictive covenants can be found to be unenforceable if:
- They are considered to be unreasonable: restrictive covenants must be reasonable and they cannot place an unfair restriction on an employee's ability to trade. If a covenant goes above and beyond what is required to protect the business interest in question, then it could be found to be unreasonable
- An employer has breached the contract: if an employer has materially breached an employee's contract, then it is possible that the restrictive covenants have been rendered void
- There are multiple conflicting covenants: if an employer asks an employee to agree to multiple restrictive covenants, some of which overlap and conflict with each other, then it's probable that a court will find only the least restrictive covenants to be enforceable
How Can Simpson Millar Help Me?
Aneil Balgobin, Partner in Employment Law based in London and Wimbledon, is an expert in this area and has been advising and supporting both employers and employees for over 15 years.
Whether you're in the process of signing a contract with restrictive covenants and need some advice, or your employee has breached a restrictive covenant and you want to take action, Aneil can offer you comprehensive legal guidance tailored to your case.
Any employee who thinks their employer has breached their rights
please contact our Employment Law Team now. You can use our free, no obligation,
online enquiry form and we will call you back or you can call us directly
on freephone: 0808 129 3320.