In circumstances where staff have regular contact with clients, or are granted access to records of an organisation’s customer base, the employment contracts of such staff are often likely to contain “restrictive covenants”. Restrictive covenants are clauses in an employment contract that apply post-termination clauses to limit your ability to entice or solicit work from clients of your old business on behalf of your new employer.
If you’re an employer, you have probably come across the idea of restrictive covenants before – they can be very helpful indeed in safeguarding your business from future harm.
However, you need to be very careful in drafting such covenants – because if you go over the top in extending the scope beyond what is reasonable, you will probably find out that the restrictive covenant is completely unenforceable.
Restrictive covenants – what’s in it for me
The whole point of a restrictive covenant it to safeguard your business. When any key worker leaves, such a contractual term might prove critical – e.g. by stopping them setting up business in competition to you nearby, or by preventing them from stealing your best clients.
However, if you set the scope of any restrictive covenant too wide, you will probably discover that any court will simply strike such a clause out entirely.
What are the most common Restrictive Covenants?
The four Restrictive Covenants clauses most commonly added to employment contracts are:
1. Restrictions on approaching or seeking business from their clients, suppliers or other contacts
2. Restrictions on poaching other employees from your business
3. Restrictions on the use of confidential information
4. Restrictions on working for direct competitors in the same industry for a certain period of time and in a particular geographical area.
An application for an injunction can be made to prevent you from continuing a particular action where you are suspected of being in breach of any restrictive covenant.
How wide can my restrictive covenant be?
Sometimes restrictive covenants are simply unenforceable, especially where employment has been terminated wrongly, in which case any restrictive covenant would be considered void.
Making these type of contractual terms too tight can also make them unenforceable – the principle is that a level of reasonable protection should be provided to the ex-employer while still permitting the employee to carry on their trade.
So, for example whilst a restrictive covenant preventing a solicitor from working for a rival law firm within say 10 miles of the office where they worked previously, for a period of six months might be wholly reasonable – a restrictive covenant preventing the same solicitor from getting a job with any competitor law practice within, say, one hundred miles for five years would almost certainly fail to be enforceable.
Limit the scope of restrictive covenants
In order to consider whether or not a restrictive covenant is actually enforceable, the court will look at two principal factors.
- Firstly is this particular covenant necessary to safeguard your legitimate business interests and
- secondly, is the restrictive covenant excessive with regard to either its duration or geographic or other scope.
Restrict their use
According to current case law, you need to be careful in who you apply restrict the covenants to – it’s appropriate to try to impose restrictive covenants on your senior workers – such as your sales team (especially if they have both direct and unlimited access to your key customers), directors, workers with technical specialist skills and senior employees in general i.e. those employees who could pose a threat your business on their departure. The opposite is that such restrictive covenants are unlikely to be really appropriate for junior staff such as office juniors or receptionists. So employers should avoid at all costs a a one-size fits-all policy when it comes to restrictive covenants
As a general rule of thumb, any attempt to restrict an employee for more than say 6-12 months may well prove very hard to justify.
Restrictive covenants may also require periodic review in order to maintain their enforceability as the reasonableness of the covenant is judged at the time it was entered into.
The court may also have regard to what is standard practice in the employer’s industry with regard to such covenants and the above factors.
Your Restrictive Covenant – Our employment lawyers advice?
o The more senior worker or more specialist their position, the easier it is likely to be to justify a restrictive covenant
o If a previously more junior or less specialist employee is promoted to a more senior or sensitive position, consider imposing a restrictive covenant on them as part of their promotion
o Don’t overdo it with the scope of any restrictive covenants – don’t go beyond what is reasonable to protect your business interests
Looking for a Law Firm for Advice on Restrictive Covenants? Contact us now
If you are in need of legal advice with regards to your employment rights or are unsure if you are in breaching your restrictive covenants, our specialist employment law team can help.
Our team can assist both employers and employees in cases of alleged breach of restrictive covenants including the issue or defence of injunction proceedings or breach of contract damages claims.
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