Restrictive Covenants in Employment Contracts

09 July 2019

All businesses have valuable information which they consider the foundation of their success and therefore wish to keep private. For many employers, it is important to keep this information within the business and restrict employees from using it after their employment has ended, either when working for a new employer or becoming a competitor.

In short, restrictive covenants in employment contracts make this possible.  However, you need to be familiar with restrictive covenants employment law.

What is a restrictive covenant in an employment contract?

Restrictive covenants in employment are used to protect sensitive company information from being disclosed by staff both during and after their employment.

They also prohibit certain activities being undertaken by former staff which could be detrimental to the businesses.

That said, you need to take care when using restrictive covenants. Employment contracts which use them can provide you with a degree of protection but they need to be used correctly.

There are four main types of restrictive covenants in employment contracts and they can span over a number of time periods. These are as follows:

  1. Non-competition clauses: states that staff cannot start working for competitors for a specified period of time, within a specified geographical area, in order to reduce the risk of sensitive company information getting into the hands of a competitor.
  2. Non-solicitation clauses: prevents staff from soliciting the business of clients or customers from you, unless they’re contacted directly.
  3. Non-dealing clauses: prevents the employee from engaging with any activity with former customers or clients—regardless of who makes the first contact.
  4. Non-poaching clauses: Prevents employees from encouraging former colleagues to leave you and join them in their new organisation.

Why use a restrictive covenant in the UK?

Every business has confidential information that it considers both integral and invaluable to its success.

Restricting the use of this information by employees after their employment has ended may be vital to the protection of your business or customer contacts.

An ex-employee, especially senior employees, who have knowledge of your technology, strategic information or customers or clients may be an attractive asset to a competitor seeking to encroach upon your market.

You may seek to protect the use of this information and trade secrets, both during employment and after the employment ends, such as a post-termination restriction.

You implement it to protect your legitimate business interests. It is essential that it extends no further than is reasonably necessary to protect those interests, anything more would be refuted in an employment tribunal.

Restrictive covenants employment template

Any restrictive covenant clause in a contract of employment needs to clear and demonstrate exactly what prohibition is being placed on a member of staff.

We detail a strong restrictive covenants employment contracts example below:

The employee shall not, during the period of [insert number] months after the date of termination of their employment with the Company, directly or indirectly on their own account or on behalf of or in conjunction with any person, firm, Company or other organisation or entity either:

  • Conduct Restricted Business or
  • Canvass or solicit or by any other means seek to conduct Restricted Business either with any Restricted Client within a [insert number] mile radius of any of our sites or with any Restricted Client whom the employee shall have had material dealings in the course of their duties during the Relevant Period.

Are employment restrictive covenants enforceable?

Enforcing restrictive covenants in employment contracts is possible if drafted properly. However, whether tribunals will enforce them will be dependent on how reasonable they are, if they are truly there to protect legitimate businesses interests and how much they impact upon a former employee’s right to earn a living.

Ultimately, when considering a breach of restrictive covenant employment, the bottom line is that the effectiveness of these restrictive covenants is up to the courts. This can make them difficult to enforce.

But without them, you have absolutely no protection and are very vulnerable. It is very much worth the time and investment on your part to implement watertight restrictive covenant as they could save you both a business and HR issue in the long term.

Enforcing restrictive covenants in employment

So what happens when an employee breaks a restrictive Covenant? How is it enforced and what is the process?

While these employment restrictions provide a way for you to protect your legitimate business interests, to be enforceable a restrictive covenant must be reasonable and proportionate.

If they’re drafted too widely, or place too much of a burden on the staff member, then an employee can challenge post-employment restrictive covenants.

This may be the case if the breadth of activities the employer is trying to restrict is too broad or the period of time is greater than that which is appropriate in the circumstances.

Looking for help?

Our business consultancy services can help you understand how to approach setting up restrictive covenants, giving you legal advice which can protect your business. Contact us today on 0800 028 2420

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