Restrictive Covenants in Employment Contracts

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LLM, LPC & LLB (Hons) Private: Shereen Murphy
Legally reviewed by: LLM, LPC & LLB (Hons) Private: Shereen Murphy
We are not currently offering Employment advice services. The following is for informational purposes only.

Restrictive covenants can be a complicated area within employment law. Therefore, if you are wanting to challenge a clause in your employment contract, our employment solicitors are here to help. A company will often seek to protect its business interests by having employees, workers or consultants sign an agreement that seeks to impose restrictions on the individual to protect the company once that individual leaves their employment there.

Although it is within the law to reasonably protect a business’s interests, a business cannot impose unreasonable restrictions on its former employees. If a restriction is found to go above what is necessary, it will be ruled as an unlawful restraint of trade and therefore will be unenforceable.

Our solicitors have years of experience when it comes to advising and representing employees and have an excellent track record of getting a resolution that works.

What is a Restrictive Covenant in an Employment Contract?

You can find your restrictive covenant in your employment contract. However, they can also be found in your policy documents, share rules, or elsewhere. A restrictive covenant will restrict what you can do for a period after your termination of employment. This is usually to stop employees from having a negative effect on the company once they have left.

Examples of Restrictive Covenants

  • Non-poaching covenants
    A non-poaching covenant stops employees from poaching old colleagues.
  • Non-solicitation covenants
    Stops employees from poaching clients or customers of the old company.
  • Non-competition covenants
    Prevents you from competing with your employer after you have left employment at the business.
  • Non-dealing covenants
    A non-dealing covenant prevents you from dealing with certain people or companies after you have left your employment.
  • Team move covenants
    Prevents an employee from employing their former colleagues.
  • Garden leave clauses
    A garden leave clause gives an employer allowance to make an employee stay away from work and have no contact with other employees, clients, or targets during their notice period.
  • Confidential clauses
    Prevents employees from sharing confidential information.
  • Intellectual Property (IP) clauses
    Ensures any intellectual property rights created by an employee during their employment automatically belong to the business.

On one hand, it is allowed in law for a restrictive covenant to be added to your employment contract, however, it may be unenforceable if it amounts to a restraint of trade.

If your employer can prove that the restrictive covenant was created to protect their commercial interests and that it extends far enough to reasonably protect those interests, it is likely for a court to rule in its favour. This could cause expensive damages to the employee. Therefore, it is important to get in contact with one of our expert employment solicitors before breaking a restrictive covenant.

What are Restrictive Covenants in Business Sales?

A restrictive covenant dispute can happen during a merger and acquisitions or agreements for the sale and purchase of business assets. It is common for the vendor of the shares or business assets to give restrictive covenants and undertakings. These restrictive covenants will state for the vendor not to solicit customers of the business or compete with it following completion of the transaction.

An agreement for business sales can include:

  • Non-solicitation of staff
  • Non-solicitation of customers or suppliers
  • Reputation and goodwill covenants
  • Geographical locations

The restrictive covenants must be reasonable and necessary to protect the business.

When is a Restrictive Covenant Enforceable in the UK?

In most cases, a restrictive covenant that restricts your right to compete is usually deemed unenforceable because it is viewed as an unlawful restraint of trade.

An employer may enforce a post-termination restriction that is drafted in a way to go no further than reasonably necessary to protect the employer’s legitimate business interests. A legitimate interest that an employer is entitled to protect by way of post-termination restrictions includes:

  • Employers trade secrets
  • Confidential information
  • Employer’s connections with clients
  • The stability of the employer’s workforce
  • Prohibiting the use of a trading name that is deceptively like the companies
  • Prohibiting the individual from being involved in business activities that compete with those of the company

To assess the enforceability of a clause, the court will consider:

  • If the restricted time limit reasonable?
  • Is the geography limit of the clause reasonable?
  • Does the clause go further than is necessary to protect legitimate business interests? (For example, trade secrets, customer relationships, or protecting the workforce?

Consequences of Enforcement

If your employer is enforcing a restrictive covenant against you, firstly you need to obtain an injunction that prevents you from working for a competitor or requiring you to hand back any confidential documents. If this fails, your employer can claim compensation against you for a breach of restrictive covenants.

Next, the courts will decide whether damages will be paid out by looking further into whether the restrictive covenant is enforceable. If it is found that you have breached the restrictive covenant, then it will be decided if doing so has caused your employer financial loss. If so, the court will decide on a compensation amount.

We recommend getting in touch with our employment solicitors as soon as possible if you are facing enforcement over restrictive covenants. There can be large consequences for breaching a restrictive covenant, so we advise you seek legal advice immediately.

How Can AWH’s Employment Solicitors Help?

If you are in a situation where you believe your employer has an unfair restrictive covenant in your contract and you wish to challenge the covenant, our solicitors are here to help you successfully dispute against your employer.

Additionally, if your employer is claiming that you have breached a restrictive covenant, our employment solicitors can help by providing timely and cost-effective legal advice.

At AWH Solicitors we offer a free 20-minute employment law consultation. We’ll give you advice on your problem at work on a no-obligation basis. Our specialist employment team is here to help by providing you with a quick and effective initial assessment.

With us, on your side, your restrictive covenant dispute will be a lot more straightforward. Contact our employment lawyers today or request a call back to discuss your case. Our solicitors are regulated by the solicitors regulation authority (SRA).

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