What is a restrictive covenant?
A restrictive covenant is written in to employee contracts detailing what activities the employee is not permitted to do after they leave the employment. To be enforceable they must be specific to the level of employee (for example it may only be relevant for senior staff), only last for a limited time and must be seen to reasonably protect the business.
What are the different types of restrictive covenants?
The most common types of restrictive covenants include non-competition covenants – preventing employees leaving to work for another similar organisation, particularly a direct competitor non-poaching covenants – preventing employees poaching colleagues after they leave employment non-solicitation covenants – preventing the employee from approaching clients and suppliers after the employment has ended non-dealing covenants – preventing employees from working with clients and suppliers after they leave, even if the employee doesn’t approach them.
Do I need a restrictive covenant to protect my business interests?
This will depend on the business interests. If the business has valuable knowledge that is integral to its success or is in a very competitive industry, imposing restrictive covenants is an effective way of mitigating the risk of ex-employees posing a threat to the business.
What is a legitimate business interest?
This will vary depending on your particular industry or sector the business works in, but are likely to include client/customer or supplier information confidential information including trade secrets client connections and relationships.
What do I need to think about when drafting restrictive covenants?
Restrictive covenants prevent an ex-employee from competing with the business in a limited way, for a limited time, and if they have been properly drafted and reasonable in scope. Restrictive covenants are difficult to draft. What is reasonable will vary depending on the nature of the business and the seniority and role of the employee. Reasonableness is also very subjective and what is seen as ‘reasonable’ is always changing. Legal advice is essential to ensure restrictive covenants are drafted correctly.
Can I also impose garden leave in the contract?
Putting an employee on garden leave means they are still employed during their notice but not required to work during this time. This could stop the employee from letting clients and contacts know they are leaving the business and where they are going to, particularly if they are setting up a new business or joining a competitor. This can work well alongside post-termination restrictive covenants.
Who do restrictive covenants apply to?
Restrictive covenants should not apply to all employees as it will make it harder to enforce. They should be drafted on an individual basis, perhaps for all managers or senior staff who have access to all client information, confidential information and trade secrets.
What do I need to do if an ex-employee has breached their restrictive covenants?
It is important to act quickly and gather evidence of the breach and actual or potential losses to the business. An urgent court application for immediate injunctive relief may be needed, or other orders to search the ex-employees home, workplace and computer equipment.
Can restrictive covenants be updated?
Yes. When an employee’s contract is reviewed or updated, for example after promotion or a change in role, this is a good time to also check the restrictive covenants are reviewed too to reflect any changes. It is important that he employee agrees to any changes introduced.
Do I have to agree to post-termination restrictions in my employment contract?
No. Employees can ask for them to be changed or even removed. However, they are now very common in the workplace and the employer may decide to change the role or even withdraw the offer altogether. It is important to raise any issues at the start of the employment, and put it in writing.
Can I negotiate out of the restrictive covenants in my contract?
If the restrictive covenants have been agreed at the outset this is unlikely, however they may not be enforceable as they may be drafted incorrectly. Employees should seek legal advice if they believe this is the case.
What can my ex-employer do if I breach my post-termination covenants?
Ex-employers will probably write to the ex-employee asking them to promise (undertake) not to breach the contract further and if the ex-employee joined a competitor they may also write to the new employer. If the responses are not satisfactory it is open to the ex-employer to make an application to the court for emergency orders such as an injunction.