What are Restrictive Covenants?
Businesses often include post-termination obligations into an employee’s contract of employment, whereby an employee agrees not to do certain things after he or she leaves the business. These are called Restrictive Covenants. There are broadly speaking four types of Restrictive Covenants:-
- Non-competition clauses
These seek to prevent the ex-employee from working for a competitor or a directly competing business, usually within a specific geographical area for a set period following the termination of employment.
- Non-solicitation clauses
These bar the ex-employee from soliciting clients, or potential clients, for a set period following the termination of employment.
- Non-poaching of employees clauses
These prevent an ex-employee from recruiting former colleagues for a set period following termination of employment.
- Confidential information clauses
These prohibit the use of any confidential information (e.g. trade secrets, customer details etc) acquired by an employee during his or her employment.
Are they Enforceable?
The starting point is that all of these clauses are anti-competition and in restraint of trade, and therefore void. If an employee challenges the validity of such clause, the employer must prove that the clause is justifiable. To do this the employer must show that the clause does no more than is reasonable to protect his legitimate business interests.
What is “reasonable” and what is “a legitimate business interest” are complex questions and the answers shall vary from case to case.
For example a claim which prevents an employee from working for a competitor for a period of 12 months anywhere within the United Kingdom may be enforceable against a national sales director but is unlikely to be enforceable against a hairdresser who only deals with clients from the immediate locality.
Another example may relate to a clause prohibiting the solicitation of clients. If the ex-employee had introduced the client originally to the business, it is unlikely that a clause prohibiting the solicitation of such clients by the ex-employee could be enforceable.
In short some times they are enforceable and some times they are not, legal advice is always necessary on such matters especially with regards to the drafting of such clauses.
Maples advise that generally speaking in appropriate cases Restrictive Covenants should be included in an employee’s contract of employment. Even if the clause is not enforceable, the Restrictive Covenant may give some protection to your business as it provides leverage in negotiating a settlement with an ex-employee or for persuading the ex-employee not to attempt to solicit clients etc since the ex-employee may not want to take the risk on a high cost legal action.
If you require advice on Restrictive Covenants then please contact Daven Naghen on 01775 722261, email@example.com or at 23 New Road, Spalding, Lincolnshire PE11 1DH or Gemma Mayer on 01775 722261, firstname.lastname@example.org or at 23 New Road, Spalding, Lincolnshire PE11 1DH.