What is a restrictive covenant?
A restrictive covenant is an express clause in a contract of employment preventing an employee from either working for a competitor or taking staff and clients with them when they leave. The general rule is that they are unenforceable as a restraint of the ability work, unless they can be justified as a legitimate method of protecting the business.
What is the purpose of a restrictive covenant?
These are used to protect a business’s valuable information after an employee’s employment has ended. Senior employees or highly skilled staff or those with access to confidential information ae the employees where we see these types of clauses in their contracts, contract to deter them from joining competitors or taking clients and employees from a business when they leave. These can only be enforceable for a certain period of time after the employment has ended.
What a restrictive covenant can protect
There are different types of restrictive covenants which can be implemented into an employer’s contract to protect a business’s interests; some include:
- Non-competition covenants which put restrictions on former employees working for a competitor of the business if it is in a similar position or starting up their own business which would be in direct competition with them
- Non-Solicitation covenants which prevents a former employee taking clients of the former employee
- Non- dealing covenants which restrict a former employee have contact with clients completely (despite who began the contact)
- Non-poaching covenants which prevents a former employee taking former colleagues with them when they leave
Limitations of a restrictive covenant
For a restrictive covenant to be enforceable by the court it must be designed to protect the legitimate business interest and it must not extend further than what is reasonably necessary to protect the business interests. This means an employer has to show that there is some asset or advantage in the business which can properly be regarded as its property and that it would be unjust to allow the employee to appropriate it.
Furthermore, for a restrictive covenant to be enforceable the covenant must not be worded too widely in regard to:
- the size of the geographical location of the restriction. For example, it would not be reasonable to restrict a former employee from working in the whole of the UK.
- length of time which the convent will be enforced after the employment has ended. Usually it would be reasonable to expect a former employee for roughly between 6 to 12 months.
- the scope of activities that the employee is restricted too.
Examples of when a restrictive covenant can be enforceable
Example 1: If X is a waiter at a restaurant and within their employment contract there is a restrictive covenant restricting them from getting a job as a waiter at a competitor’s restaurant after their employment, this is unlikely to be enforceable. This is because a court is unlikely to find this reasonably necessary to protect any of the restaurant interests and the clause prevents her from making a living.
Example 2: If Y was a self-employed hairdresser at A’s salon and there was a restrictive covenant in their […. Contract?] stating they cannot leave to go work for a competitor or take their clients, this is unlikely to be enforceable. This is because as Y is self-employed working within A’s salon Y is entitled to do whatever they wish.
However, if Y was an employer for A at the salon and there was a restrictive covenant within Y’s employment contract that they cannot go work for a competitor or take any of the Salon clients, this is likely to be enforceable. This is because it would be reasonably necessary to protect the salon’s interests.
Example 3: If Z was the CEO of B Company and there were restrictive covenants within Z’s employment contract they cannot go work for a competitor or take any of the company’s clients, this is likely to be enforceable. This is because the knowledge and skill Z has gained from B Company this would be reasonably necessary to protect the company’s interests.
Anything within this article should not be taken as legal advice. Any information provided will be general advice and for reference purposes only. It does not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking or deciding not to take any action. If you wish to obtain specific advice to your situation and your decisions, please contact us and we will thereafter be able to advise.
Written by the Thrive Tribe