Restrictive Covenants in Employment Law

The success of a business relies on certain information that is considered both invaluable and integral and, to protect the business, it is important to restrict the use of it when an employee leaves the company.

A competitor might consider an ex-employee an attractive asset because of the knowledge that they have about your business. However, there are specific terms that are introduced in employees’ contracts that can provide employers with some form of protection.

However, any post-termination restriction might become void as it could be considered a restraint of trade and contrary to public policy. As a result, it means that an employer, in general, is not entitled to protect their business against competition that derives from ex-employees. Despite this, if the ex-employer can convince a court the covenant has been created to protect business interests and does not extend further than reasonably necessary to protect those interests then it will be enforced.

Restrictive Covenants

What types of restrictive covenants are there?

• Non-competition covenants – these restrictions are placed on a former employee who is working for a competitor.
• Non-solicitation covenants – these are designed to prevent the poaching of customers, suppliers, and clients from the previous employer.
• Non-dealing covenants – this prevents a former employee from dealing with previous customers, suppliers, or clients irrespective of which party approached the other.
• Non-poaching covenants – this restricts previous employees from poaching former colleagues.

If a restrictive covenant is too broad, there is a real risk that it will not be enforceable. It is the responsibility of the employer to prove why the clause is justified. An employer should consider factors such as:

1. The size of the geographical area included in any restriction as well as the period of time of the restriction after employment has been terminated has to be justified. A wide geographical area is likely to be turned down while any periods over 6-12 months will be hard to justify.
2. The range of activities that the employer is attempting to restrict.
3. The type of interest that is being protected.

It might also be required for the employer to provide evidence of any link between the employee and any information that is being protected. As a result, the extent of clauses must relate to the position that the employee held. Employees in senior roles are likely to have more knowledge of sensitive information and so, any restrictions placed on them could be justified. Therefore, choosing a policy that takes a one-size-fits-all approach could mean that the clause that you are seeking to rely upon is unenforceable.

More information

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This article was written by Alex Pearce, Senior Associate in the Employment Law Team at Pinney Talfourd LLP Solicitors. The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. Specific legal advice should be taken on each individual matter. This article is based on the law as of January 2021.