Restrictive Covenants in Employment Law

As a firm of Employment Law Solicitors in Stockport, we know that all businesses nowadays have confidential information, key clients and certain employees that they consider vital to their success, and so protecting those interests is a number one priority for a business.

Because of this, restricting the use of confidential information and where ex-employees go and work and what they do after their employment has been terminated is something that companies do to protect their business. An ex-employee who has knowledge of specific technology or strategic information will be a valuable asset to the r competitors of a business.

There are certain terms of employment that can be inserted into employees’ contracts that will provide a certain level of protection whilst the employee is in employment, but many employers also feel the need to insert clauses into employment contracts that will restrict the employees conduct after termination has occurred – and these are usually known as restrictive covenants. But what exactly are they?

What Is A Restrictive Covenant?

A restrictive covenant is a clause that is placed in an employee’s contract and which prevents them from undertaking certain activities such as competing with their former employer or speaking to customers of that business for a specified period of time after the employee has left the business.

Many people believe that such a restriction is not valid as it places a restraint on trade and is, therefore, contradictory to public policy. However, if the employer can prove to a court that the restrictive covenant is designed to protect their legitimate business interests and extends no further than is reasonably necessary, then it will usually be upheld and enforced.

Types of Restrictive Covenant

There are four main types of restrictive covenants. Analysis Legal, a Stockport based Employment Law Solicitors are familiar with these and they are:

1. Non-Competition – Stops an ex- employee from working for a competitor in a similar role to the one they previously held, and also prevents them from setting up a competing business.

2. Non-Solicitation – Prevents ex-employees from approaching customers or prospective customers or suppliers.

3. Non-Dealing – More onerous than non-solicitation as it prevents ex-employees from communicating with customers or suppliers whether they encourage it or not. So, if the customer approached the ex-employee they would still not be allowed to talk to them, in the same way as if the ex-employee had approached them.

4. Non-Poaching – Prevents ex-employees from taking other key employees with them to their new business.

Employers need to be very careful, as for a restrictive covenant to be enforced it needs to be worded carefully, and not have too wide a coverage. It is important to remember that it is up to the employer to prove that the clause is justified and sufficiently narrow if the clause is challenged after termination. Therefore, it is important for the employer to keep the following things in mind:

Geographical area – how broad is the geographical area that the restrictive covenant covers? If it is too wide, it won’t be justified

Length of Time – a covenant covering a long period of time, usually more than 6 to 12 months post termination, will be hard to justify in the case of a challenge

Breadth of activities – these have to be enforceable and so the narrower and more defined the better

The interest that is being protected – trade secrets will be more likely to be granted wider protection than customer information, for example, as trade secrets have a wider use across markets than customer information does

It is also important to remember that the employer might be required to show evidence of any connection between the employee and the information that is being protected.

Therefore, it is important to remember that the extent of the restrictive covenant must be about the employee’s position in the business, and so a one-size-fits-all restrictive covenant should be avoided at all costs. They need to be tailored in the individual’s employment contract.

Contact Us for Restrictive Convenant Advice

For more information on restrictive covenants in Employment Law, please contact Analysis Legal, or email us at info@analysislegal.co.uk. We have supported countless clients through the enforcement, drafting, or challenge of restrictive convenants. We have years of experience, and the expertise to ensure the best possible outcome for you, your career, and your business.