Restrictive covenants are clauses (often in the employment contract) which restrict what an employee can do after the termination of their employment for a set period of time. This can also be referred to as a 'called restraint' of 'trade clauses' or 'post-termination restrictions'.
The most common are:
Whilst employed, employees have duties of loyalty and good faith to you, as their employer. However, once that employment ends, those duties end save for an ongoing duty not to reveal trade secrets which the law implies.
An employee could (amongst other things) leave and immediately work for a competitor and/or contact your customers with a view to taking their business away from you and with them. This could be a particular problem if the employee was in a sales/customer-facing role and could result in financial loss, in the form of lost business to your organisation.
No. The employee has to agree to them and you will need proof of that to be able to try to rely on them. The best way to do this is to include them in the contract of employment, ideally at the start of employment – and get it signed to show that they consent to them.
These should then be reviewed every time the employee changes roles or is promoted to make sure the restrictions remain relevant and survive any changes to the role. Similarly, an employee who does not have them may need them upon being promoted and so it is always advisable to review and update terms whenever there are changes to an employee’s role.
No. The starting principle is that employers should not restrict people's ability to work and earn a living. But you are allowed to protect what is described as your “legitimate business interest”. To stand the best chance of being enforceable, therefore, restrictive covenants must go no further than is reasonably necessary to protect what it is that you, as a business, are entitled to legitimately protect. What is reasonable always depends on the exact circumstances – there is no “one cap fits all” with these clauses and drafting clauses that stand the best chances of being enforced is a very detailed process that takes many factors into account. The courts take a very strict approach and do not take kindly to clauses that attempt to go further than they need to, often simply declaring them invalid and unenforceable.
Investing in legal advice from an employment law specialist will help to ensure any covenants you want to enforce is viable.
Consideration has to be given to the nature and geographical spread of the business and the clients and precisely what the employee does. Having standard covenants that give no proper consideration to the above might save legal costs but this risks them being unenforceable, meaning there is little you can do if that employee decides to set up on his own and take your business with him.
If you are worried that an ex-employee is in breach of their restrictions, get in touch and we can help you to review the enforceability of your covenants to see what, if anything, you can do about it.
However, it is far better to have shut the stable door before the horse has bolted! Make sure you have properly drafted restrictive covenants in place:
If you have any queries on this topic or any other employment law issue, please contact the team on 01904 360295 or enquiries@bridgeehr.co.uk