Private Client

Restrictive Covenants

Any business wants to protect itself from competition, and it is common for employers to include restrictive covenants in their contracts of employment.   These are intended to continue after an employee has left his job, and to prevent him from taking business from his former employer. 

Restrictive covenants fall into five main categories:

1.         Not to set up in business and compete.
2.         Not to go and work for a competing business.
3.         Not to ‘poach’ customers/clients of the business.
4.         Not to ‘poach’ existing employees of the business.
5.         Confidentiality.

There is a conflict between a business legitimately wishing to protect itself from competition and an individual’s right to continue with his or her trade or profession. To try to overcome this conflict the courts have imposed certain limits on the enforceability of restrictive covenants.  Any covenant is to only going to be enforceable as far as it is reasonable to protect the legitimate interests of a business.

Restrictive covenants need to be limited in time (e.g., applying for three months, six months, etc) and/or geographically.  As a rule of thumb, three to six months will probably be enforceable; six to twelve months may be enforceable; twelve to twenty-four months are only likely to be enforceable against very senior employees and restrictions lasting longer than twenty four months are unlikely to be enforceable.

The enforceability of a geographical restriction will depend on various factors such as the nature of the business, the whereabouts of the client base and the locality of the business.

Because restrictive covenants are intended to protect the business of the employer, they should only appear in the contract of those employees which may be a threat upon leaving.   A manager, senior sales person or director who has had contact and built relationships with most of the employers clients may damage the employers business if he leaves and is not subject to any restrictive covenants. Restrictive covenants will be enforced by the courts so long as they only go as far as reasonably necessary to protect the employer’s business interests.

If an employee has left a business and would like to offer remaining employees a job, he may be restricted from doing so.    Again, this restriction should only apply to the poaching of senior employees, or those with specific skills, and not to all employees of the former employer.

Some contracts will include a provision that a former employee must notify a new employer of the restrictions he is subject to.   A failure to do so would be breach of contract, and lay the new employer open to legal action from the former employer.   If the new employer instructs the employee to do something which is in breach of a restrictive covenant, the new employer could be found to be inducing a breach of contracts and liable to pay damages.

All employees have implied into their contracts a duty to keep their employers confidential information, confidential.    This obligation continues after the termination of the contract. However, post employment this is limited to trade secrets and many contracts have an express term imposing a more extensive duty of confidentiality applying both during the employment and after its termination.

You may be about to sign a contract which contains restrictive covenants, or may be leaving your employment and are concerned about restrictions in your contract.    If you have any queries, please contact Marina Vincent on 020 8422 5678.

Contact Harold Benjamin employment lawyers team for employment law in London and Nationally.