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What are Restrictive Covenants and are they enforcable?

What are Restrictive Covenants and are they enforcable?

18 Jan 23:00 by Jenni Moulson

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In employment terms, restrictive covenants are clauses within an employment contract that become enforcable when that employment comes to an end. They are designed to protect the company’s interests by preventing an employee from carrying out certain activities when they have left.

The four most common areas covered by restrictive covenants in employment contracts are: 

Non-compete clause

These are designed to stop an employee from working for a competitor or competing directly with their ex-employer. The restriction will usually be for a given time period e.g. six months and/or within a specific geographical area.

Non-solicitation clause

This type of clause tackles the issue of employees targeting a former employer’s clients or customers. It may specify that an approach must not be made to customers previously dealt with whilst employed by the company. A time frame will usually be included, either covering a certain period after leaving the company or specifying a timeframe of effectiveness prior to leaving e.g. customers dealt with in the 12 months preceding departure from the company must not be approached. A more specific non-dealing clause may be used which seeks to prevent dealings with an ex-employer’s customers even if the approach is made by the customer.

Non-poaching clause 

This seeks to prevent former employees from recruiting key colleagues to join them at their new place of work. Again there is usually a validity period of say 6 months following termination of employment.

Use of Confidential Information 

With so much sensitive information now held on databases to which several key members of staff are likely to have access, clauses relating to confidentiality are becoming increasingly common. Their aim is to prevent the use of confidential information acquired during employment.

Are restrictive employment covenants enforceable? 

The more specific a clause is, the more likely it is to stand up in a court or tribunal. If a non-solicitation clause specifies that none of the company’s clients must be approached then it is unlikely to be enforceable, particularly if the industry’s nature means that firms within the sector will inevitably work with the same businesses.

There should be a legitimate business interest that is being protected. The objective must always be to protect the business and not to make life difficult for the ex-employee.

The clause should also go no further than is reasonably necessary to protect that business interest. If the terms of the covenant are too restrictive an employee may be prevented from progressing within an industry in which they have skills and experience and this is a matter that would be taken seriously by a court or tribunal.