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Restrictive covenants: what you need to know as an employee

Monday, 23 February 2015

business-man-1338212-mWhilst leaving a job to start your own business or move to pastures new can sometimes be a liberating experience for employees it can also provide problems for businesses and employers who wish to limit any damage to their business when the employee leaves. However, sometimes these clauses can go beyond protecting reasonable business interests and leave an employee unable to move forward with their career.

What do restrictive covenants cover?

  • Non-Compete – aims to prevent an employee from competing with their former business once their employment ends. This could be by beginning employment with a named competitor or by setting-up business in direct competition.
  • Non-Poaching – aims to prevent an employee from poaching colleagues.
  • Non-Solicitation – prevents an employee from approaching former clients to gain work, either for themselves or their new employer.
  • Non-Dealing – works in a similar way to the Non-Solicitation clause but aims to prevent the employee from working with a former client even if it was the client that made contact with the former employee.

Are they always enforceable?

Although restrictive covenants are put in place by businesses to protect their interests, they can sometimes be unfairly prohibitive and leave an employee with too few options post-employment.

If an employee discovers that they may be unable to move forward with their career due to prohibitive clauses, or has an injunction placed against them by their employer then they should seek legal advice. It may be that the restrictive covenant will be enforceable or can be negotiated.

Whether a restrictive covenant is enforceable or not often depends on a number of different factors, which will determine whether they are deemed valid or anti-competitive and resistant to trade.

It must be carefully drafted to be only as restrictive as is deemed to be reasonable so as to avoid going beyond what is reasonable to protect a legitimate business interest.

The language and terms of the covenant must be tailored to that individual. For example it might not be reasonable to apply the same covenants and restrictions to an office junior that you would a director level employee.

The time period and geographical area must be reasonable, for example a restriction preventing an employee competing in the same region as the employer is more likely to find favour with the courts than one that prevents them from competing nationwide.

A legitimate business interest could be one of the following:

  • Preserving client or customer relationships
  • The stability of the business
  • Protection of confidential information, i.e. trade secrets

If you suspect that the restrictive covenants within your contract might be void, or believe the terms offered in a contract are unfair then you should seek professional legal advice. Rollingsons employment law solicitors can review restrictive covenants. To arrange a complimentary telephone consultation please call us on 020 7611 4848.

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