RESTRICTIVE COVENANTS

Contracts of employment often include post termination clauses. For example, a contract of employment may state that after an employee leaves their employment, the employee will not contact clients or disclose confidential information to third parties. These obligations are called restrictive covenants. The law recognises that an employer is entitled to protect legitimate business interests by including restrictive covenants in contracts of employment, provided they are no wider than necessary. Restrictive covenants aimed at simply restricting competition are likely to be struck out as an unreasonable restraint of trade. There are broadly four types of restrictive covenant:

1. non- compete covenants – which seek to prevent a former employee from directly competing or working for a competitor. Such clauses are usually limited in time or geographical area;

2. non-solicitation/non-dealing covenants – which seek to prevent a former employee from enticing business away from the company. For example, you may enjoy a close working relationship with a particular client, who you regard as your own client, and will want to persuade the client to continue sending you business when you start working for your new employer. This could lead to injunction proceedings being issued against you and your new employer;

3. non-poaching of employees covenants – which seek to prevent a former employee recruiting their colleagues for a set period following termination;

4. restrictions on the use of confidential information – which seek to prohibit the use of any confidential information acquired by an employee during their employment.

The extent to which employers can protect themselves from the potential harmful competitive activities of their former employees is a complex area of law. Whilst employed, employees have a duty to act in the best interests of their employer, but once their employment ends, any term included in the contract of employment may be invalid and unenforceable unless it can be shown that the clause protects the legitimate interests of the business for a reasonable period of time and is not simply an attempt to restrict competition.

Employees who ignore restrictive covenants may find themselves receiving an injunction application against them which includes a claim for costs. In the circumstances, we do suggest that you consult us either before entering into a contract of employment which contains restrictive covenants or before you take any action that may result in an application being issued against you. In some cases restrictive covenants can be enforced against you new employer as well as yourself.