Restrictive Covenants in Employment Contracts
Legal Advice on Restrictive Covenants for Employees
Restrictive Covenants - FAQs for Employees
What is a restrictive covenant in an employment contract?
Restrictive covenants are generally found in contracts of employment. You can also find these clauses in staff handbooks, offer letters, bonus plans and share schemes.
Put simply, restrictive covenants or restrictions prevent employees from competing with a business after employment ends. An example of a restrictive covenant is a ‘non-compete’ clause. Such a clause prevents an individual from joining a competitor for a specific time. In addition, you will find ‘non-dealing’ clauses. These clauses say that an employee is not allowed to work with certain clients for a period of time.
If you are an employee and you have restrictive covenants in your contract, these clauses may limit your options when you leave employment. The restrictions could prevent you from starting a new job for several months.
Are restrictive covenants legal?
Restrictive covenants cannot be ignored.
Someone may have told you that employers never enforce them. That is a common misconception. On the contrary, the courts regularly enforce restrictive covenants in employment contracts.
Restrictive covenants are included to protect the employer’s relationships with its customers, its confidential information and the stability of its workforce. For example, a company can include clauses that stop employees from dealing with specific clients..
An important consideration is whether the covenants are written well. A Court will not enforce a badly drafted clause. A restriction may be void because it is in restraint of trade. It is essential that restrictive covenants are reasonably drafted and that they are limited in scope.
In order to enforce a restrictive covenant, an employer must demonstrate that the clause protects one of its legitimate business interests. Secondly, the employer must show that the clause is reasonable, and it only goes so far as is necessary protect a legitimate business interest of the employer.
If you have been offered a contract of employment that includes restrictive covenants, you should take legal advice. This will reduce the risk of nasty surprises in the future. In addition, an experienced solicitor can also explain the implications if you have acted in breach of your restrictions.
Why do employers include restrictive covenants in employment contracts?
Employees who resign may be planning to take advantage of what they know about their employer’s business. Departing employees will have knowledge of confidential information as well as information about customers and clients. Some employees may consider using this information to assist them in setting up a rival business.
Alternatively, some employees may attempt to gain a head start when they begin a new job. For example, by downloading the employer’s customer database before they leave. This activity can be damaging to the old employer’s business. To protect a business from departing employees, employers include specific restrictions in the employment contract. An employer is entitled to protect its relationships with its customers, clients, suppliers and its confidential information.
What types of restrictive covenants are included in employment contracts?
These restrictions prevent a former employee from misusing or disclosing confidential information belonging to the former employer.
These covenants prevent an employee from attempting to persuade clients to move their business. Usually, solicitation occurs when a former employee contacts a client to encourage that client to move its business from the former employer.
These restrictions should only apply to clients with whom the employee had meaningful contact during the last six months or year of employment.
These restrictive covenants prevent an employee from working with clients of their former employer in a competing role. These restrictions should be limited to clients with whom the employee had meaningful contact recently.
These restrictions can also apply to prospective clients and customers.
These restrictive covenants prevent an employee from approaching former colleagues and persuading them to join a new business.
These restrictions should be limited to colleagues with whom the employee had meaningful contact recently.
These restrictions prevent an employee from being involved in the recruitment of employees from their former employer. These restrictions should be limited to colleagues with whom the employee had meaningful contact recently.
These are the toughest restrictive covenants. They prevent the employee joining a business in a role that competes with the business or part of the business in which they were recently employed.
Most employment contracts will contain restrictions on the employee exploiting or disclosing confidential information after termination. Confidential information clauses and non-poaching clauses are difficult to police. Therefore, employers use non-compete clauses to protect the confidential information in a more effective way. However, a non-compete restriction can be harder to enforce than a non-solicitation restriction or a clause protecting confidential information.
When is a restrictive covenant enforceable?
Courts will enforce restrictive covenants in certain cases. The scope of the restrictions must not be wider than the employer needs to protect its legitimate business interests. The usual business interests which an employer may protect include:
- Confidential information and trade secrets
- Relationships with clients
- Stability of the workforce
What makes a restrictive covenant enforceable?
The courts will consider the following factors:
- Does the restriction last for a reasonable amount of time?
- Is the restrictive covenant limited in geographic scope? The wider the geographical area the employee is stopped from working in, the harder it will be to justify the clause
- Is the scope narrowly drafted and does it reflect the specific circumstances of the employment?
- Did the employee receive a benefit in return for accepting a restriction?
- The seniority of the employee
- Did the employee have access to confidential information or clients?
- The loyalty of customers in the relevant market
- The standard industry practice in the context of a reasonable restrictive covenant. For example, if a six month non-compete restriction is regularly seen in the sector, the court is likely to regard that period as being reasonable
- Whether the restrictive covenant was reasonable at the time the contract was entered into. That will be when the employment started or when a new contract was signed by the employee
If a post termination restrictive covenant is held by a court to be unreasonable, it is void and the court will not enforce it.
Can an employer stop an employee working for a competitor for 12 months?
Typically, an employer will find it difficult to justify a non-compete clause which lasts for 12 months. However, much depends on the employer’s business, the seniority of the employee, and the employee’s access to confidential information. In some situations where the employee is senior, a non- compete clause lasting 12 months will be reasonable.
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Can an employer put you on garden leave and still enforce restrictive covenants?
Employers often use garden leave in combination with restrictive covenants for maximum protection.
With a garden leave clause the employer can require the employee to stay away from work and not to contact clients.
This means that an employer can choose to keep an employee, who has resigned or been given notice, out of the market for their notice period. During this time the employer has an opportunity to recruit a replacement. In addition, a new recruit will have some time to build and maintain relationships with the employer’s clients. While on garden leave, the employee is out of the business and will no longer have access to the company’s confidential information.
Most contracts of employment will include a right for the employer to place the employee on garden leave. Without one, it may not be lawful for an employer to require an employee to go on garden leave.
Many contracts will say that the restrictive covenants will be reduced by any time spent by the employee on garden leave.
Does an employee have to accept a contract with restrictions?
An employee is entitled to refuse a contract containing restrictive covenants. The employee can ask the employer to either change or remove the covenants. However, restrictive covenants are standard in employment contracts. Ultimately, the employer may refuse any changes. This could result in the employer even withdrawing the job offer.
If an employee starts work but does not wish to accept the restrictive covenants in an employment contract, they have to tell the employer promptly. Ideally, this should be done in writing. Otherwise, the result may be that the employee will be bound by the restrictions.
Are restrictive covenants valid in a redundancy situation?
Yes, an employer is entitled to impose restrictive covenants on an employee who has been made redundant.The employer may decide that it no longer needs someone doing a job. That does not mean that the employer is abandoning the business area that the employee worked in. The employer may still wish to protect the confidential information that the employee knows by enforcing a non-compete clause.
When should an employee take legal advice?
If you plan to leave your job to join the competition, you should take expert legal advice as soon as possible. It is important to be aware of the numerous legal risks that await the unprepared.
Even if you’re careful, you could be at risk of legal action from your former employer. Your old company could claim that you have unlawfully enticed colleagues or clients to leave with you. They may accuse you of breaching your employment obligations. Your employer may also investigate whether you’ve removed any of its confidential information.
Being aware of your legal obligations at the outset will ensure that you plan ahead and avoid legal claims. We can advise you on the correct way to go about leaving your employment. Our solicitors can guide you on how to comply with your legal obligations. Furthermore, we can also let you know whether the restrictive covenants in your contract are lawful. If it comes to it, we can also defend you in High Court proceedings if your employer obtains an injunction against you.
What if an employees ignores a restrictive covenant?
If you are an employee, you may want to ignore the restrictive covenants when you leave employment. You may want to work for a competitor and to bring your clients and contacts with you. In doing this, however, you run the risk of your former employer issuing legal proceedings against you to enforce the restrictive covenants.
The former employer could seek an injunction preventing both you and any new employer from acting in breach of the restrictive covenants. Such applications to court for injunctions happen more often than employees realise. Consequently, employees should think carefully before acting in breach of any restrictive covenants.
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Why clients choose us
If your employment contract includes a restrictive covenant which you are not happy with, it is best to seek specialist employment law advice. Our employment lawyers are highly experienced in this area.
- First, our reputation: we are highly rated by the legal directories, Chambers & Partners and the Legal 500. Our satisfied clients have written fantastic reviews on our work. Employees continue to choose us again and again.
- Secondly, we are fortunate to have worked in a wide range of sectors giving advice on restrictive covenants. This has resulted in a highly experienced team with a bank of expertise in this area.
- Thirdly, Communication – we give clear and straightforward advice from the start. We make sense of the law and make sure that you understand all your options.
Contact our legal team today
If you are looking for legal advice on your restrictive covenant, our employment solicitors can help. To make contact call us on +44 (0)20 7329 9090 or email us at Doyle Clayton and we will call you. Please leave a message if you can’t get through. We will respond quickly to all enquiries.
Additionally we are happy to advise you on a video call. One of our team can often advise you on the same day you contact us.