Restrictive covenant and an employment contract

shaking hands

Every business has information that it considers both integral and invaluable to its success or perhaps a trade secret. Restricting the use of this information by employees upon the termination of their employment may be vital to the protection of the business or customer contacts. A former employee who has knowledge of technology, strategic information, customers or clients may be an attractive asset to a competitor seeking to encroach upon your market.

A restrictive covenant is a clause in an employment contract which prohibits an employee from competing with his ex-employer for a certain period after the employee has left the business. It can also prevents the ex-employee from soliciting or dealing with customers of the business by using knowledge of those customers gained during his prior employment.

Common types of restrictive covenants;

Non competition: –  This will place a restriction on a former employee working in a similar employment for a competitor. This type of clause will often include a duration and exclusion zone.

Non solicitation: – Will prevent a former employee poaching clients, customers or suppliers of the former employer, or even other employees.

Non dealing: – This will prevent a former employee from dealing with former clients, customers, suppliers. The additional benefit is this will prevent either party from approaching the other.

When a contract is drafted including restrictive covenants the following will need to be considered, as if the contact is drafted too widely it will be difficult to justify the enforceability of any covenant.

  • The breadth of the geographical area.
  • The length of time the post termination restriction is in place.
  • The activities that the employer is trying to restrict.
  • The interest being protected e.g. trade secret.
  • The restrictive covenant must directly relate to the employee’s employment.

Restrictive covenants may also require periodic reviews to maintain their enforceability as the reasonableness of the covenant is judged at the time the contract was entered into. In terms of enforceability, if an employer has reason to believe an employee has breached the post termination restriction, the most common remedy sought is an injunction.

If you require any further information about restrictive covenants or enforcement, please contact the team at Watson Legal either by calling 01279 466910 to book your free 30 minute consultation or email info@watson-legal.com.

Legal Update – National Living Wage & National Minimum Wage

In November 2016, the Government announced changes to the National Living Wage (NLW) and National Minimum Wage (NMW). These changes will take effect from April 2017.

The rate for workers aged over 25 (NLW) is set to increase to £7.50 per hour, the rate for workers aged 21 to 24 years is set increase to £7.05 per hour, the development rate for 18 to 20 year olds will increase to £5.60 per hour, the rate for 16 to 17 year olds will increase to £4.05 per hour and the apprentice rate will increase to £3.50 per hour (NMW).

Unfortunately, a huge number of businesses have been identified as underpaying workers. On the 15th February 2017, the Department for Business, Energy and Industrial Strategy released a statement which named 359 businesses who are underpaying 15,513 workers a total of £994,685.

HMRC have issued penalties worth around £800,000. Business Minister Margot James says they want to send a clear message to employers that minimum wage abuses will not go unpunished.

There can be serious consequences when a worker has not been paid the national minimum wage:

1. The worker could enforce their entitlement under their contract, by making a claim for breach of contract or a claim for unlawful deduction from wages. This may have financial consequences.

2. HMRC could enforce the worker’s entitlement by issuing a notice of underpayment or suing on the worker’s behalf. The employer will then be required to pay a financial penalty to the Secretary of State.

3. If the employer has refused or willingly neglected to pay the worker his entitlement, he may be guilty of a criminal offence under the National Minimum Wage Act. If tried in the Magistrates Court, the employer is it risk of a fine limited to the statutory maximum (currently £5,000). However, if tried in the Crown Court there is not a limit on fine the judge could impose on the employer.

If you have any questions about this article then please call 01279 466910 or email info@watson-legal.com to book your free 30 minute consultation now.