Restrictive covenants in employment
A “restrictive covenant” is a clause in a contract of employment. It is inserted by an employer with the aim of restricting the actions of an employee, usually once the period of employment has ended.
For example, if an employee quits or is sacked, the covenant may prevent the employee poaching clients or setting up a rival business in the area. By signing the contract at the start of employment, an employee agrees to the covenant.
As a general rule, a restrictive covenant is unenforceable! But it can be valid in certain circumstances. It must:
- not go against public policy
- not be unreasonably wide (in terms of scope, location and time), and
- protect a legitimate business interest (for example, a trade secret).
A covenant cannot be justified on the basis of “mere competition”. And employees cannot be stopped from using their own skills, knowledge and experience even if they were gained whilst working for a particular employer.
Example: a non-compete covenant
This is a type of restrictive covenant which prevents an employee from working for a competing business in the area. It must be reasonable. For example, it must specify the type of work the employee has done for his employer (it would be unreasonable to prevent an employee from doing types of work which he has not done before).
The clause must specify the geographic area. A clause limiting an employee’s ability to work within 100 miles of an employer’s business would, in most circumstances, be too wide. A clause covering the whole of London has been considered inappropriate. But it depends on the circumstances.
Setting up a business? Maybe it shouldn't be too close to your old job.
Example: a non-solicitation or non-dealing covenant
The aim of this restrictive covenant is to stop employees leaving a job and taking work from existing clients. This is generally considered legitimate, but it must only relate to clients the employee has had dealings with. And such a covenant cannot prevent a client taking his business elsewhere if the client wants to do so.
Time
The covenant must contain a time limit, and it must be reasonable. A time limit of 5 years would be considered excessive, but a time limit of 6 to 12 months may be reasonable, depending on the circumstances.
Remedy: injunction
If you are an employee considering breaking a restrictive covenant, be aware that your former employer may be able to get an injunction. This is a court order preventing you from taking action (to break the order would leave you in contempt of court).
An employee can defend a claim for an injunction, but it is far better to negotiate a restrictive covenant before starting work than trying to “undo” it afterwards.
How's the garden?
Garden Leave
This is a clause in a contract which maintains employment during a notice period (while the employee is not at work). It can be used as an alternative to a restrictive covenant as it holds an employee to his or her obligations. Business interests can be protected in this way, as an employee will not be able to work for a competitor. For garden leave to be an option, there must be an express clause in the contract.
If you have any comments or experiences relating to restrictive comments, please use the form below. If you require legal advice, please contact Winston Solicitors LLP (again, you can use the form below).
