Relying on restrictive covenants

by | Jun 8, 2020

Amid tough trading conditions and concerns about redundancies, we have received an increased number of enquiries for advice on restrictive covenants.  Restrictive covenants are contractual clauses that attempt to restrain the actions of a departing employee after they have left the business. Typical restrictive covenants state that the employee cannot compete with the former employer’s business for a specified number of months after the employee’s departure or that they must not poach their former colleagues. Some businesses, such as estate agents often include a geographical range for the restrictions but this is becoming increasingly less relevant in other sectors.

The starting position of the court is that restrictive covenants are not enforceable because they prevent open competition. Courts will only enforce restrictive covenants if the restrictions only go as far as necessary to protect the employer’s legitimate business interests, such as client connections, maintaining a stable workforce, confidentiality and relationships with suppliers. Writing clauses that a court will enforce requires thinking carefully about the specific employee’s role and their relationship with clients and suppliers. The restrictions must be carefully and accurately worded to address the particular threat that the individual employee poses to those legitimate business interests.

A decision of the Supreme Court in Tillman v Egon Zehnder Ltd [2019] was welcomed by employers as it allowed courts to remove words from restrictive covenants in some circumstances to make sure that the rest of the wording is binding. This gives employers better chances of being able to enforce restrictive covenants.

We can review your restrictive covenants to advise you on their enforceability and any other contractual provisions that you could use to help protect your business, such as garden leave and confidentiality. We can also prepare letters to departing employees reminding them of the restrictive covenants in their contracts. Employers looking to enforce restrictive covenants must take care that they do not breach their obligations under the employment contract, for example by giving too little notice or treating the employee so badly that they can argue the duty of trust and confidence has been breached. Otherwise, the employee may be released from the restrictive covenants.

Finally, if a departing employee has built up business connections as part of their job through their social media account, we can advise you on who owns that important data and what you can do to protect it.

This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.

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