How to ensure your restrictive covenant is watertight and enforceable.

Alan Price – CEO at BrightHR

July 21 2015

A restrictive covenant is a clause which restricts post-termination activity of employees once they have left the business, affecting issues such as confidentiality, solicitation of clients and location of business. Due to misapplication of these covenants it can often be thought that they are not worth the paper they are written on, however, correct drafting and implementation will result in a successful restriction on an ex-employee’s activities. When drafting restrictive covenants, these need to be reasonable or they will not be valid and enforceable. Restrictions will only be enforceable for the time limit stipulated within the covenant and this, again, cannot be unduly large. Reasonable clauses will not place a blanket restriction on future activities but will be individual for each employee, taking in to account the business in question, the employee’s seniority, geographical location and client base. For example, the time period should not automatically be twelve months; this will normally be seen to be unrealistically wide, especially for non-senior members of staff. The seniority of employees will be an important factor to take in to account when drafting covenants because it is likely that more senior employees will have access to sensitive information at the time of their departure. Employers wishing to enforce covenants must gain the employee’s agreement to these. This is usually easily done at the beginning of employment but may become harder to gain further down the line. Refusal to sign a restrictive covenant can be grounds for a fair dismissal under the ‘some other substantial reason’ provision. This will, usually, require the employer to show that they have acted reasonably in requiring the employee to restrict their freedom post-termination. This evidence, though hard to prove, could be through showing that the company has previously suffered substantial losses due to employees’ actions after employment. Enforcement of restrictive covenants takes place by the employer at civil court, rather than through an Employment Tribunal. The employer can also claim for damages due to the employee’s actions, so long as they can show that the business has suffered financial loss from the breach of covenant.

Suggested Resources