We recently wrote a blog on what restrictive covenants are and their purpose, which you can find here.
Here at Thrive we regularly advise on what may happen if a Restrictive Covenant is breached. This blog is an employer’s guide to the potential implications if a former employee breaches their Restrictive Covenants.
What happens if you believe an employee has breached a Restrictive Covenant?
First, you should check that the post-termination restrictions in the former employee’s employment contract are actually enforceable. There is no one size fits all in this scenario, and for a Restrictive Covenant to be enforceable, you must consider the following:
- Is the length of the restriction proportionate to the seniority of the former employee? E.g. the court is not likely to enforce a restriction longer than 6 months for a fairly junior member of staff, or 12 months for a senior manager.
- Is the geography of the restriction reasonable? For example, it does not restrict someone from working in their area of expertise throughout the entirety of the UK. If it does, might that amount to a restraint of trade?
- Is the restriction necessary to protect a legitimate business interest? What does that employee know, which would damage the former employer’s business?
- Are the restrictions specific? If the restriction is too wide, they are not likely to be enforceable.
If a former employee’s Restrictive Covenants are enforceable, and there is a known breach, a business can seek an injunction. An injunction would initially prevent the former employee from doing what they are doing until a court date is set and evidence is heard. This is a preventative measure from the court to ensure that any potential breach of restrictions cannot continue until the court decide whether there has been a breach. The court do not always grant an injunction and it is dependent on whether they believe there is a serious enough allegation that a Restrictive Covenant has been breached, whereby the business is losing significant revenue as a result. Injunctions are quite draconian and the court can be reluctant to put them in place.
If the court decides that a former employee has breached their post termination restrictions, it must then be determined whether the business has suffered a loss because of the breach. For example, if an existing client of the company has now moved elsewhere to a business that a former employee has set up in direct competition, then it may be a loss of profit.
A former employer may go after both the employee and the business they have moved to, if they are profiting from knowingly inducing the breach of covenants. The court may award damages to the former employer, which the person in breach of the restrictions would be liable for, as they have profited from the breach of covenants.
As a first step, though, as the matter would be civil litigation, a former employer would have to write a “letter before action” outlining the allegations and typically giving the employee (and, where appropriate, new employer) the opportunity to respond, and explain why the breaches have not incurred or the restrictions are not enforceable, or to rectify their breaches and undertake to do so. Practically speaking, this stage provides a significant warning to a former employee that they may be pursued for a breach.
How we can help
If you have received a letter before action for an alleged breach of restrictive covenant, or you otherwise want to understand the enforceability of your existing restrictions, we can help with this.
Using Thrive’s HR services makes your life easier; we provide you with quick and most importantly, correct HR advice so that your staff management is stress-free and sufficient. We take care of everything. From drafting contracts and handbooks tailored to your business to advising and supporting you through redundancies. There is no limit to our knowledge: if you have an HR question, our qualified solicitors have the answer for you. We are always one phone or email call away.
Why should you outsource your HR services to solicitors? Getting your HR services from a solicitor means, should a case ever proceed to tribunal everything we have ever discussed is protected by Legal privilege meaning all conversations are protected. Whereas if you were to use an HR consultant, all conversations and documentation regarding that employee would be disclosable in the tribunal.
Get in touch today to invest in your business and make your HR stress free email us at email@example.com
By Annabelle Oliver
Please note this blog is for reference purposes only and is only accurate at which the date it was published. 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 actions. Please contact us if you have any questions on firstname.lastname@example.org.