Restrictive Covenants

A restrictive covenant is usually a clause in a contract which prevents your employee from either:

  • competing with any aspect of your business after their employment has terminated, or
  • soliciting customers of your business by using knowledge of those customers gained during their employment.

Your business may have information that is either integral and/or invaluable to its success and it may therefore seek to restrict the use of this information by your employees after they have left the company. Your employee may be an attractive asset to a competitor if they have had access to your client details and trade secrets, and you may decide to protect this information by including one or more restrictive covenants in their contract.

To ensure the effectiveness of your restrictive covenants, solicitors are usually the best people from whom to seek advice.

The standard types of restrictive covenants generally used include:

  • restrictions on working for a competitor;
  • non-solicitation covenants, which prevent your employees from poaching your clients/customers;
  • non-dealing covenants, which prevent your employees from any dealing with former clients/customers, regardless of which party approached the other;
  • non-solicitation of staff, which prevent your employees from poaching existing employees.

When drafting restrictive covenants, you must be mindful of certain factors:

  • The extent of the geographical area must not be too wide;
  • The length of time of the post termination restriction must not be too long;
  • The type of interest being protected should be justifiable. For instance, the protection of information such as trade secrets may be more justifiable than information regarding customer information, given that its potential use across markets is wider.
  • The level of restriction of the clause in relation to your employee’s position within the business. More senior employees are more likely to be in contact with more sensitive information, so more onerous restrictions may be more justifiable.

If an employee agreed to certain post-termination restrictions in their contract and subsequently argue they are too onerous, it is for you to convince the court that the covenant is:

  • designed to protect their legitimate business interests; and
  • that it extends no further than is reasonably necessary to protect those interests

If you would like more detailed information about restrictive covenants or if you would like assistance in drafting restrictive covenants, Ashby Cohen can help you. We specialise in employment law cases, and our years of experience as employment lawyers make us uniquely qualified to assist you with any breach of contract issues you may have. Please contact us or an initial free telephone consultation.

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