Employment Restrictive Covenants

restrictive covenants
Employment Restrictive Covenants

Restrictive Covenants

Confidential information, IP, business know-how, pricing, suppliers, and client or customer data are key to the survival and success of most businesses. So, protecting those vital business assets, which many  employees will have some degree of access to and knowledge of, is essential for most businesses.

A common way to protect your business, including the risk that employees who have close contact with your customers or suppliers will seek to divert business away from you after they leave, is to include employment restrictive covenants in your employment contracts.

The difficulty in legal terms with including restrictive covenants in your contracts of employment is that this is an area of law where whatever is included in the contract and on the face of it agreed, may not be considered lawful and enforceable by a court.

Consequently, good legal advice is important in ensuring that any post-employment restrictions are drafted in a careful way likely to be considered enforceable by a court.

Our employment lawyers are specialists in employment restrictive covenants. We advise on and draft appropriate clauses for employment contracts and also advise in situations where covenants have been breached and swift legal action is required.

Restrictive covenants: legal risks for employers

The way the Employment Tribunal and courts approach whether a restrictive covenant is enforceable is by taking into account both an employers legitimate need to protect it’s assets, information and goodwill as well as an employee’s legitimate right to be able to find alternative employment and use his or her skills and know-how.

In simple terms, a covenant will usually be considered enforceable if it is reasonable and proportionate. This will typically mean, in terms of clauses restricting an employee for working for a competitor, that the clause is reasonable in terms of duration and geographical restriction.

Please do contact our employment lawyers for advice and assistance with employment restrictive covenants.

Time limits before working for competitors or approaching clients

Each situation is different. To an extent, a court or tribunal will look at the seniority of the employee or his or her ability to severally damage the employer when looking at whether a restriction on approaching customers, working for a competitor or setting up your own competing business.

As a starting point, and only a starting point :

  • Restrictions lasting 3 to 6 months will often have a decent chance of being enforceable by an employer.
  • 6 to 12 months is more difficult to justify for employers as enforceable;
  • 12 to 24 months will typically be very risky for employers and should generally only be considered with very senior employees.

Geographical restrictions

Whether a restrictive covenant based on geography will be enforceable will include consideration of factors such as the type of business, the risk to the business if a breach occurs, whether the length of time the restriction is drafted to apply for, and any other relevant considerations 

Garden leave

A common way for employers to seek to avoid the legal and practical risks of enforcing post-employment restrictions is to retain the employee as an employee for a lengthy notice period where the employee is required to stay at home and effectively stop working for the employee and/or to only work in a way which restricts access to customers, contacts and information.

Garden leave clauses can be effective but they do not always work. It is not uncommon, where an employee has very strong relationships with key customers and/or is otherwise very valuable to a competitor, for that competitor to induce the employee to breach garden leave and offer an indemnity to the employee against any consequences for breaching the garden leave or post-termination restrictions. In other words, putting an employee on garden leave does not mean, as an employer, you can relax. Vigilance is key.

injunction to enforce a restrictive covenant?

Where there is breach of a restrictive covenant, damage can be caused to a business very quickly. This is especially the case when customers are approached. Valuable business can be lost at worst and at best, customers may be confused or lose confidence in your business. In that situation, you may want to act quickly to protect your interests and that may mean applying for an injunction to prevent the ex-employee from contacting customers or suppliers. Sometimes, an injunction may be considered when a key employee is about to start working for a competitor in breach of employment restrictions.

Injunctions are always expensive and high-risk. Before applying for an injunction, careful consideration and experienced advice are always recommended. We have the experience to help; please do contact us.

Solicitors for restrictive covenants

Our team of employment lawyers are highly experienced in advising on all aspects of restrictive covenants, protecting confidential information and data and in advising employers and employees on disputes involving alleged breaches of post-employment restrictions.

Please do get in contact to discuss your situation and how we can assist.

Avatar of DLS Solicitors by DLS Solicitors
2nd October 2023
Avatar of DLS Solicitors
DLS Solicitors

Our team of professionals are based in Alderley Edge, Cheshire. We offer clear, specialist legal advice in all matters relating to Family Law, Wills, Trusts, Probate, Lasting Power of Attorney and Court of Protection.

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