Restrictive covenant and an employment contract

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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.

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