Restrictive Covenants
A restrictive covenant is a restriction put into an employee’s employment contract which will become enforceable after their employment has been ceased. When agreeing to restrictive covenants the employee is effectively agreeing not to do certain things post-employment. They are usually put in place to protect the employer’s business from the employee using the knowledge and information gained during the course of employment.
4 types of Restrictive Covenants
- Non-compete covenants.
- Non-dealing covenants.
- Non poaching of employees.
- Restrictions on the use of confidential information.
Always enforceable ?
Although an employer can put whatever restrictive covenant into a signed agreement between the employer and employee, the covenant will be void if it is seen as a blatant restraint of trade. This means that an employer cannot make the restrictive covenants so harsh that the employee cannot continue their career in their chosen profession. It is also worth employers bearing in mind that if an employee challenges the enforceability of a restrictive covenants that the burden is on the employer to prove to the court that the restrictions are sufficiently narrow. The extent of restrictions on an employee should also reflect their position with the company for example it would not be justified to have an extremely onerous restriction on a junior tea boy whose main responsibilities was collecting post and photocopying.
The general guidelines to which employers should follow to ensure that their restrictive covenants are enforceable is that they should be reasonable, protecting legitimate business interests and not for duration longer than what is necessary to protect the employer’s interest.
A legitimate business is not fully defined and will be an objective definition depending on the business carried out by the employer.
Duration of a Restrictive Covenant ?
It is very unlikely that any court will enforce a restrictive covenant which pertains to be more for longer than 12 months. Restrictive covenants of no more than 6 months are much more likely to be enforced by the Court, assuming that the employer can prove that the restriction is reasonable and protects a legitimate business interest.
Validity of a Restrictive Covenant
It is also worth noting for employees and employers that restrictive covenants are only enforceable if the employee contract between the parties has not been breached. If the employer terminates an employees’ contract in an incorrect manner this will automatically void the contract and therefore makes the restrictive covenant void.
Another way in which a restrictive covenant can become void is if the employer pays the employee a sum of money in respect of their notice period, so the employee doesn’t have to work in said period. In this situation, if an employee’s contract doesn’t cover a payment for notice the restrictive covenant will become void.
Often an employer will enter restrictive covenants into contracts even though they are fully aware that they will not be enforceable, they put these into contracts so as they can act as a deterrent.
Remedies for breaching a Restrictive Covenant
If an employee breaches one of the restrictive covenants inserted into their contract there are remedies available to the employer. The most common remedy available is an injunction. An injunction will effectively be an application made by the employer to the court to ensure that the employee puts a stop to the actions they are taking pending the outcome of the legal proceedings.
An employer may also be able to claim damages against the breach of a restrictive covenant however they will have to show that they have suffered loss resulting from the breach. However, it is often very difficult for an employer to show that they have suffered damages and that the actions of the employee, usually using contacts or clients gained in their previous employment has led to their previous employer losing business opportunities. Assessing damages in this respect is often very difficult for the courts.