What are restrictive covenants in employment contracts?

Whether you’re signing or drafting an employment contract, it’s vital to understand the concept of restrictive covenants and how they relate to the law.

The context to restrictive covenants

Businesses always have information – whether data, systems, networks or customer insights – that are vital to their success and considered critical to success in their own right. To protect this information and to make sure it doesn’t get into the hands of a competitor, businesses restrict the ability of employees to take it with them once their employment ends.

Ex employers who have knowledge of key business information, clients or technology can be highly attractive to competitors who want to understand your secrets, so employers build certain terms into employment contracts to offer a degree of protection.

Employers may seek to protect and restrict the sharing of valuable business data during employment and once it ends through a restrictive covenant. These clauses are often built into the contracts of employment for highly skilled or senior staff when they begin employment. This practice can prevent them from leaving to join a competitor and prevent a competitor from trying to poach the individual.

Image Credit

What is a restrictive covenant?

This is usually a contractual clause which prevents an employee from working for a competitor for a certain time period after leaving the business. It might also prevent the individual from dealing with customers of their former employer or approaching them for business, using knowledge and insights gained during their prior employment. It is essentially a legal attempt to prevent the business from losing its data, information or intellectual property via a departing employee.

Are these clauses enforceable?

Restrictive clauses can often be argued if tried in court. For example, they can be voided as a barrier to public policy and a trade restraint. Individuals cannot always be precluded from working for the competition by limitations imposed by their ex-employers. However, there are grounds in which the employer can successfully argue their legitimacy, in which case they may be upheld and can be enforced.

An example of possible enforcement would be to protect a legitimate client connection, stable workforce or confidential information, rather than to prevent or stifle competitive activity

Constructive dismissal claims and restrictive covenant types

There are various restrictions that employers use, such as covenants for non-solicitation of clients (poaching), non-competition, non-dealing and non-poaching of former colleagues. If challenged, the employer must show that the clause is sufficiently narrow and can be justified. For example, a maximum term of 12 months is usual, and the type of interest must be tightly defined. The issue of covenants may be raised in the course of a https://www.employmentlawfriend.co.uk/constructive-dismissal constructive dismissal claim

It’s also vital that the cause is relative to the individual’s role within the business. For example, senior executives would expect to be subject to more onerous clauses as they deal with more sensitive and confidential data. These covenant clauses tend to be unenforceable if they are taken as a one size fits all policy. They will also need to be reviewed periodically to remain enforceable and reasonable.

Image Credit

Why it’s important to get legal help

Employment contracts can be extremely complex, with elements of risk when it comes to a constructive dismissal claim, unenforceable contract terms, restrictive terms and other issues. By using an expert employment lawyer, you can craft watertight contracts that fit the needs of your business and which meet the requirements of the law.

This is particularly important when you are hiring senior executives, who are by dint of their role in the business, particularly attractive targets for corporate poaching.

Leave a Reply

Your email address will not be published.