As an employee, a restrictive covenant is typically a clause in your contract preventing you:
- Competing with your former employer after your employment has ended.
- Soliciting customers by using knowledge gained during your employment.
Your employer may wish to invoke a restrictive covenant if you have information or a relationship integral to the success of the business that it wishes to protect after you've left the company.
Indeed, given that you may be privy to client details and trade secrets, competitors may see you as an attractive asset, which is why your employer may wish to safeguard its interests.
This can be done by including one or more restrictive covenants in your contract. The standard types of restrictive covenants used include:
- Limitations on your working for competitors.
- Non-solicitation covenants to prevent you enticing away your employer's clients/customers.
- Non-dealing covenants to prevent you dealing with former clients/customers, regardless of which party approached the other.
- Non-solicitation of staff to prevent you enticing away existing employees of the employer.
When you agree to a restrictive covenant in your contract, you must be mindful of the following factors:
- The scope of the geographical area must not be too wide.
- The post termination restriction period must not be too long.
- The type of protected interest must be justifiable. For example, safeguarding trade secrets may be more justifiable than information regarding customer details.
- The clause's level of restriction in relation to your position within the business. For instance, senior employees are more likely to be in contact with sensitive information, so more onerous restrictions may be more justifiable in their case.
In reality most employees do not seriously consider the restrictive covenants contained in their contracts of employment until they are looking to leave or have been offered another position, which may be in breach of the restrictions. Questions to consider are: what the employer is trying to protect; what are the fundamental elements of your current/former job role; what are the key activities of your new job; and in this role, will you be working in competition to your current/former employer and/or are likely to be 'going after' the same client's? Alternatively do you have business pricing or strategy information that a new employer may want to use?
If you've agreed to certain post-termination restrictions in your contract and later realise they're too onerous, it's for your employer to convince the court that the covenant:
- Is designed to protect their legitimate business interests.
- Extends no further than reasonably necessary to protect those interests.
If a restrictive covenant it too wide then it may be deemed by the Court as a restraint on trade (limiting your ability to work) and it may be held to be unenforceable. It will be a balancing exercise to weigh the employer's right to protect its business and your right to earn a living and each case is fact sensitive.
It is advisable to to take advice on your individual situation before breaching a restrictive covenant. if you do not then you may find yourself having to provide legal undertakings to your former employer about your conduct and/or defending a claim (including an application for an injunction) against you which can be costly and stressful.
For more detailed information about restrictive covenants, or if you want to know more about your rights as an employee, we're here to help.
To arrange your initial free consultation, please get in touch with a member of the team – we'd be delighted to help.