Restrictive Covenants
How we can help:
Draft effective restrictive covenants as part of your employment contracts or settlement agreements
Help you to negotiate restrictive covenants with potential employees or other workers
Advise you whether an ex-employee has breached a restrictive covenant, and what action you can take
Represent you in seeking an injunction or claiming damages
What are restrictive covenants?
Restrictive covenants are terms in a contract that prevent employees using business contacts or information gained in their role to compete with you. Restrictive covenants may be used in employment contracts signed at the beginning of the relationship, or settlement agreements made to end the working relationship.
The terms of restrictive covenants will vary depending on the interests you want to protect. Some common clauses prevent employees:
working for a competitor
setting up their own business
approaching your clients
working with your clients at all
recruiting your other employees
making use of sensitive business information – for example, knowledge of manufacturing processes , critical financial information or new product development
Restrictions are only enforceable if they uphold a legitimate business interest and must be no more restrictive than is reasonably necessary. You cannot used covenants purely to limit competition. Fair competition is permitted, it is only unfair competition that is unlawful.
What makes a clause unreasonable?
Restrictions are a balance between the right of a business to protect its interests and a clear public interest in individuals being free to earn a living. It is a fine balance.
Whether the clause is reasonable will depend on individual circumstances, including:
the geographical area covered
how long it lasts
the activities restricted
the type of interest being protected
the relevance to the role
what is standard practice in your industry
Do I need a solicitor to draft restrictive covenants?
In short, yes. This is a complex area of law, often misunderstood and very expensive if it goes wrong. It is sensible to get legal advice from an Employment Law expert when creating restrictive covenants, as the courts may refuse to uphold terms that are unreasonably restrictive, ambiguous or otherwise poorly drafted.
What is reasonable depends on factors specific to your business and the employee’s role. A standard, one-size-fits-all clause could be unenforceable in many cases.
An Employment solicitor can advise you which restrictions are reasonable for your business and the role of the employee, so you have peace of mind knowing you can rely on the clause.
What can I do if an ex-employee has breached their restrictive covenant?
You may be able to take action for breach of contract and seek an injunction to stop your employee carrying out work or business that breaches the covenant. You may also claim financial damages for loss caused by the breach - for example, the income you would have earned from clients who have taken their custom to your ex-employee.
Disputes over restrictive covenants are contract disputes, heard in the courts rather than the tribunal. This means that you could ask for your ex-employee to pay your legal costs if the finding is in your favour. If a competitor has induced your ex-employee to breach the covenant, you could also sue them for damages. This is often helpful if your employee doesn’t have the resources to pay damages.
Before spending money on legal action, you should be confident that the restriction is reasonable and enforceable. If the covenant is unenforceable, it is best to find out early on, rather than once you have already invested time and money into the claim.
It is always best to seek legal advice as early as possible to try and avoid a dispute, or at least resolve it swiftly.
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Address: Spencer Shaw Solicitors Limited
St Mary's House, 68 Harborne Park Road,
Harborne, Birmingham, B17 0DH
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