Employment Restrictive Covenants – key things to know for employers and employees

Restrictive covenants in employment contracts are crucial tools for protecting a business’s sensitive information and maintaining a competitive edge. Well drafted covenants may prevent employees, certainly in the short term, from damaging the employer after departure, by working for competitors, soliciting clients, or disclosing confidential information. 

An over the top approach from the employer will often mean that restrictive covenant clauses are either found to be unenforceable or are watered down if tested at court. An experienced and balanced approach is key, which generally means this is an area where getting employment law advice at the drafting stage is recommended.

We would be happy to advise and assist whether you are an employer needing employment contracts drafted or updated or an employee offered a contract with onerous restrictive covenants. We also advise and represent employers and employees where there is a dispute about the validity or enforceability of post employment restrictions.

Key points and recommendations for Employers

• Clearly define legitimate business interests – employers must identify and clearly define the legitimate business interests they seek to protect with restrictive covenants, such as trade secrets, client relationships, and workforce stability.
• Ensure reasonableness – restrictive covenants must be reasonable in terms of duration, geographical scope, and the activities they restrict. They should be no more extensive than necessary to protect the employer’s legitimate interests.
• Tailor covenants to roles – the extent of the restrictions should be tailored to the employee’s role within the company. Senior employees with access to more sensitive information may justifiably be subject to more onerous restrictions.
• Review and update covenants regularly – the enforceability of restrictive covenants can change as employees’ roles evolve and as legal standards develop. Regular reviews can ensure that covenants remain enforceable and relevant.
• Use Garden Leave clauses wisely – garden leave clauses can be an effective way to protect the company’s interests by keeping the employee out of the competitive market for a period after their employment ends. Ensure that any garden leave clause is reasonable in duration and is included in the employment contract.
• Act quickly if a Breach is suspected –  if an employer suspects that an employee has breached a restrictive covenant, it is crucial to act quickly to assess the situation and consider legal action to enforce the covenant or seek damages

Key points for employees

• Understand the restrictions –  before signing an employment contract, understand the restrictive covenants it contains, including their scope, duration, and the activities they prohibit.
• Negotiate when possible – if you believe a restrictive covenant is overly broad or unreasonable, negotiate with the employer before signing the contract. It may be possible to agree on more reasonable terms..
• Consider the impact on future employment – be aware of how restrictive covenants might affect your ability to work in your chosen field or geographic area after leaving your current employer. Consider seeking legal advice to understand these implications fully.
• Comply with restrictions – breaching a restrictive covenant can lead to legal action by your former employer, including injunctions and claims for damages. If you’re considering a move that might breach a covenant, seek legal advice first..
• Challenge unreasonable covenants – if you believe a restrictive covenant is unenforceable because it is unreasonable or not necessary to protect legitimate business interests, you may be able to challenge it in court. However, legal advice is essential in such situations.

Action points

Restrictive covenants are powerful tools for employers to protect their business interests but must be used judiciously and reasonably to be enforceable. Employees should carefully consider the implications of these covenants on their current and future employment. Both parties may benefit from legal advice to navigate the complexities of restrictive covenants effectively.

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