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How aware are you of restrictive covenants? Are you worried about an employee leaving your business and want to protect your customer base or information?

 

In order to protect an employer's commercial interests, it is often commercially desirable to impose certain restrictions on an employee which will apply following the termination of the employment relationship. Employees may have knowledge of sensitive information in relation to their employer's business strategy, customer and/or supplier profile and pricing which they could use post-termination for their own benefit or for the benefit of a competitor. Accordingly, employment contracts will often contain specific restrictions to protect the employer's business interests post-termination.

 

In addition to the list of items that have to be included in the 'Written Particulars of Employment', employers can add other clauses that are specific to the employment in which the employee is engaged. A clause that is commonly added, and which needs some careful thought, is a restrictive covenant.

 

The purpose of such a covenant is to restrict the activities of an employee for a period of time after leaving the organisation. However, to be enforceable and protect the legitimate business interests of the employer, a restrictive covenant must be reasonable. A covenant might be unreasonable if the geographical coverage is too great (for example, restricting an employee from working anywhere in the UK), the length of time that the covenant is in place is too long or the content (the nature of the activity) is too broad.

 

There are four principal types of covenant:

  • non-competition covenants stop the employee from working for a competitor for a specified period of time in a specified geographical area.
  • non-solicitation clauses prevent employees from soliciting the business of clients or customers of a former employer. However, they do not prevent an employee from working with a former client or customer if that client or customer makes contact directly with the employee.
  • non-dealing clauses stop the employee from both soliciting clients from a former employer, but also dealing with the client. These are more comprehensive than non-solicitation clauses because they cover the employee engaging with any activity with former customers/clients for a specified period of time, regardless of who makes the first contact.
  • non-poaching clauses prevent employees from encouraging former colleagues to leave the employer and join them in their new organisation.

Employers should remember that in assessing the reasonableness of a restrictive covenant the courts will consider the position of the parties at the time the covenant was entered into rather than the position at the time the employer is seeking to make use of the covenant. Employers should strengthen restrictive covenants as employees become more senior rather than including the same restrictions for all levels of staff.

 

If your business is looking to expand and you would like advice on ensuring that your contracts are relevant to your needs, please do contact us at This email address is being protected from spambots. You need JavaScript enabled to view it.