Restrictive covenants or post-termination restrictions are used by employers to protect their business by restricting an employee’s activities for a period of time after that employee’s employment has terminated.
Such restrictions usually appear in an employee’s contract of employment or are sometimes introduced in a settlement agreement or an updated contract or addendum, for example, where an employee is promoted to a more senior position. Employers should review and update their covenants where an employee is promoted or their role significantly changes. This is because restrictive covenants are normally assessed against the interests of the parties at the time the restrictions are entered into.
What employers should bear in mind with this area of the law is that as a starting point, restrictive covenants are void on the grounds that they are a restraint of trade and contrary to public policy. In essence, an employer is not entitled to protection against competition from its former employees. However, if an employer can show that such restrictions go no further than what is reasonably necessary to protect a ‘legitimate business interest’ then such restrictive covenants are likely to be enforceable.
Recognised legitimate business interests are:
We can assist and advise on all aspects of best protecting your organisation, including:
Call us on 01206 593933 today to speak with one of our employment law solicitors. Or complete the form below.
This type of restriction seeks to prevent an employee from joining a competitor or setting up a business in competition after they have left their employer’s organisation. This type of covenant can be difficult to enforce however if there is specific confidential information which cannot be protected in other ways and the employee is bound to use that information if they join a competitive business then this type of restriction is more likely to be enforceable.
This type of restriction looks to prevent an employee from actively contacting or making an approach to clients, customers or suppliers of their former employer’s business. It is not always the case that the employee has to make the first move, non-solicitation can also cover situations where the customer or client contacts the employee first however if an employer wants to prohibit any contact with customers then it should also consider including a non-dealing covenant in the employee’s contract.
This type of restriction covers the situation where clients or customers might approach an employee first. It has advantages as it avoids the difficulty of proving the employee made an approach however, the courts have been cautious about upholding these types of restriction given they not only affect the rights of the employee but also those of third parties. Enforceability of this type of restriction will depend on the interest being protected and is more likely where an employer can establish a substantial personal connection between the employee and the relevant customers or clients.
This type of restriction prevents an employee from soliciting other employees to leave an employer’s business (sometimes known as a ‘team move’ especially if more than one employee is poached). An employer will have a legitimate interest in maintaining a stable workforce however it needs to bear in mind factors such as how long after the employee leaves will they have continue to have influence over other employees and also the scope of employees over whom such influence will exist.
As mentioned above, restrictive covenants should not go further than what is reasonably necessary to protect a legitimate business interest taking into account factors such as the seniority of the employee and their role, the duration of the restriction and the geographical area of the restriction. A properly drafted covenant can be an effective way of restricting an employee’s activities after they have left employment giving an employer the ability and time to strengthen or re-establish its relationships and connections with clients or business contacts who are valuable to its business.
Enforcing restrictions can be an expensive and lengthy process and the courts will heavily scrutinise restrictions where an employer looks to take enforcement action against an employee. Restrictions will be particularly vulnerable and therefore likely to be unenforceable where they have been poorly drafted, the remit of the restriction is too wide or it is not clear as to what interests the employer is seeking to protect.
Call us on 01206 593933 today to speak with one of our employment law team.
A Mackman Group collaboration - market research by Mackman Research | website design by Mackman
