What do restrictive covenants mean in employment?

Whether you call them restrictive covenants or post termination restrictions, read why you need to know your employment rights. 

It’s not often that employment law hits the headlines, but with Mary Berry’s shocking departure from the Great British Bake Off, many fans despaired at how, ‘contractually’, their favourite TV chef could be allowed to move to Channel 4. Would a non-compete clause have changed things? Contractual matters like this, are not unusual to many employers who routinely add restrictive covenants to senior employee contacts, restricting their conduct (and in some cases even their choice of future employment) if they choose to leave their employment.

What’s unusual is the increasing use of non-compete clauses by employers with junior employees (evidenced most recently with Amazon in the US). Last year, the UK government went so far as to issue a call for evidence on whether non-compete restrictive covenants should be banned. So, what does this all mean for you as an employee? What are they and why should you know about them?

What do restrictive covenants look like in your contract?

1. Non-Competition Clause – This restriction is seeking to prevent you from working for a competitor in a similar role to the one you’ve held previously. It is generally put in place to stop you taking valuable and/or confidential information to another competing business for a certain period of time following the termination of your employment. Not only this, but it could also stop you setting up a similar business to the one you are already in or have just left.  However, in reality, these are one of the most difficult restrictive covenants to successfully enforce in a court of law.

2. Non-Solicitation Clause – Designed to keep your little black book of contacts closed – for a while at least – this blocks you from approaching your ex-employer’s clients or, in some cases, their prospective clients too. Usually, this is with specific reference to contacts you had direct dealings with for a certain period of time in the lead up to your termination date. After the time set aside for the restriction is up, there is not much your old employer can do unless you have deliberately removed confidential information and/or databases containing the details of these specific clients/prospects.

3. Non-Dealing Clause – Taking things up a notch from non-solicitation, this prevents you from dealing with previous clients, whether you actually make the first move and encourage them or not. Conversely, this can also be seen as ‘locking-in’ a client, as they legally can’t leave even if they look to follow you as a ‘trusted advisor’ to your new place of employment. Even if they approach you, the restriction would bite in the same way as it would by you directly soliciting them. However, (and again like non-competition clauses) these are often one of the hardest types of restrictive covenants to successfully enforce in a court of law.

4. Non-Poaching Clause. If an employer is worried about one departure starting a wider ‘exodus’, this clause aims to protect a company from staff following a departing employee . An employer will put this in your contract to prevent you from taking other key employees with you to your new business / employer.

5. Gardening Leave – For many, being offered this after handing in your notice is a dream scenario. A covenant placing you on gardening leave means that once you hand in your notice, your employer sees fit to prevent you coming to the office, makes you work from a different location or stops you from working full stop (while still paying you in full as well as often providing you with access to your normal employee benefits). Read more: xxx[LM1] [LM2] 

Are restrictive covenants enforceable?

Many candidates would admit that they don’t fully understand the legal ramifications of what it means to sign a contract bearing restrictive covenants. Whether these clauses are actually enforceable in a Court of Law however, will depend upon the circumstances of each individual case. In order to give you a greater understanding of restrictive covenants the following principles will usually be considered:

1. Is the restrictive covenant reasonable?

In the eyes of the law, the restrictive covenant must not be any more restrictive on the employee than is reasonably necessary to protect the employer’s business. For example, if a clause seeks to restrict your dealing with “all clients”, this will often be seen to be too broad and ultimately unrealistic and unenforceable. If the clause, however, only seeks to restrict you from approaching clients that you had “material” dealings with in past 12 months, then this has a greater opportunity of being upheld. The Court here must assess how reasonable the restrictive covenant is – if it is too onerous then it is likely to be struck out as unenforceable by the Courts.

2. Does the restrictive covenant protect specific legitimate business interests?

Case law has demonstrated that your employer must be able to show that it has legitimate business interest which requires protection when enforcing a restrictive covenant. On a basic level, does the employee have details on a huge infrastructure spending contract or is it just the venue of the office Christmas Party? This principle is designed to test whether a company is competing against an employee just for the sake of it, versus whether their future actions could have a detrimental and/or significant effect on the business.

3. What is your position in the business?

As seen recently with the news from Amazon, it’s seen as much more ‘reasonable’ to use restrictive covenants to limit the actions of more senior employees, who are regularly in contact with customers and clients. If you are in a more senior position (that is from the level of managers and above), you will be more likely be able to exploit the information to your advantage when moving somewhere else.

5. Is breaking a restrictive covenant worth the risk?

When weighing up the cost/benefit scenario, you may decide just to ignore any restrictive covenant when you leave for the employer of your choice – taking your clients and contacts with you. This is a bold move, and you would run the risk of your old employer issuing legal proceedings against you for breach of contract in order to enforce the relevant restrictive covenants. This will often include an application for an injunction restraining both you, and your new employer, from being in breach of contract. Such applications are rare, but you should nevertheless not recklessly breach your covenants without first taking professional advice. It could otherwise prove very costly for both you and/or your new business/employer.

With non-compete restrictive covenants being currently under a wider Government microscope on Employment Law, it is very important for anyone considering leaving a business for another that they are aware of how these clauses could impact a move. Once you have signed a contract that is legally binding, and as the law relating to this stands, you could be held accountable in the event you have breached any enforceable restrictive covenant.. Know your rights, speak to legal representatives and don’t make any rash moves that could hurt you down the line.

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