Drafting restrictive covenants – what employers should know

During their employment, employees have access to confidential information, build relationships with valued customers and have insights into trade secrets. When they leave that employment these interests could be vulnerable. A restrictive covenant can help businesses to protect their interests when an employee leaves. However, they must be carefully drafted in order to be enforced.

Drafting a restrictive covenant

It is important that restrictive covenants are drafted carefully as they must be deemed to be protecting a legitimate business interest in order to be enforceable. A court will take into account the employers interests but also the employees right to work, so it is important to identify why the covenant is needed, otherwise the court may conclude it is resistant to free trade.

Legitimate business interests include:

• Preserving customer or client relationships and connections
• Protecting trade secrets and other confidential information
• Maintaining the stability of the workforce

Clauses must also be drafted only as widely as is necessary; for example, in respect of the time period and geographical distance to which they apply. In addition the nature of the clause must be reasonable in relation to the employee’s role. An example of this is that it might be more reasonable to prevent a senior member of staff from working in competition for 6 months than it would be to stop an office junior from doing so. With this in mind, it’s important that restrictive covenants are not generic and are instead drafted for each particular employee and their job role. Their seniority, level of skill, access to information and the scale of their day-to-day involvement with clients should all play a part in determining the scope of the covenant.

When restrictive covenants are used that prevent an employee from working with an employer who is deemed to be a competitor, it is important that “a competitor” is clearly defined and includes a definition of the type of business which the employee is not allowed to work within. For example, an employee may be allowed to work for a direct competitor in a completely different role to that which he was working in with his former employer.

Businesses practices and employee job roles evolve with time and it’s important that the restrictive covenants within their contracts reflect this change, so contracts and clauses should be regularly reviewed to ensure they are up to date. A clause which does not accurately reflect changes in seniority, pay and duties might not stand up in court.

You can find out more about restrictive covenants by reading our free guide. Alternatively, to arrange a complimentary telephone consultation with one of our employment law solicitors, please call us on 020 7611 4848.