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Three key types of restrictive covenants

Monday, 9 March 2015

hand-writing-1094969-mRestrictive covenants are used to protect business interests by preventing employees from competing with them after they leave. However, many employers don’t understand how they work and some employees may be unaware of how their terms could affect them post-employment. In this blog post we will look at the three most commonly used restrictive covenants.

Non-Compete clauses

Non-Compete clauses aim 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.

The clause might restrict the employee from joining a company that operates in the same industry for a specific time period and within a certain geographical area.

If the clause needs to be enforced then a court will look at a number of different factors including the type of job, the seniority of the employee and the geographical area to determine whether or not the restrictions are reasonable.

Non-Solicitation clauses

Losing a key employee can prove to be a problem for a business, but if that employee then attempts to solicit work from clients and customers then the consequences could be disastrous. Without a Non-Solicitation clause in place, former employees will be free to entice staff and customers away.

Non-Solicitation covenants aim to prevent employees from contacting clients and customers to solicit work. Similarly non-poaching covenants aim to prevent employees from poaching former colleagues to join them at their new job.

Non-Dealing clauses

Non-Dealing clauses work in a similar way to Non-Solicitation clauses but aim to prevent the employee from working with a former client even if was the client that solicited their work. This means that even if the employee is approached by a former client or customer requesting their help and expertise, they will be unable to provide them with their services.

Enforceability of clauses

Restrictive covenants are only enforceable if the employer can show that they are only as restrictive as is necessarily reasonable to protect a legitimate business interest. An example of a legitimate business interest could be the preservation of client relationships or arrangements, the privacy of confidential trade secrets or information, or the stability of the business.

If you feel your business could be left vulnerable by a key employee leaving then you should seek advice in drafting restrictive covenants, ensuring that they are protecting legitimate interests reasonably and are tailored to individual roles.

For more information on restrictive covenants see our full length guide, here or to arrange a complimentary telephone consultation with one of our experienced employment law professionals call us on 020 7611 4848.

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