Post Employment Restrictive Covenants
Although there is no statutory definition of a ‘post-employment’ restrictive covenant, they are generally understood to refer to clauses that restrict an employees ability to work for a competing business, or to establish a competing business for a defined period after termination.
Restrictive covenants can take various forms, but they are usually formulated under the following categories:
- non – compete clause: where a former employee is restricted in their ability to work for a competitor business or set up in competition with their former employer.
- non – solicitation clause: where a former employee is prevented from soliciting either your customers/clients, or existing employees.
- non-deal clauses: where a former employee is prevented from ‘dealing’ with your existing customer/clients.
- Geographical restrictions: where a former employee would be restricted from working for a competitor within a certain geographical distance of their former place of employment.
Currently the law on restrictive covenants is predicated on the presumption of unenforceability, unless as an employer you are able to show that the restrictions are reasonable. The onus of being able to demonstrate reasonableness fall to the employer, and for a restrictive covenant to be deemed reasonable, and thus enforceable, the covenant must be necessary to protect a legitimate business interest and goes no wider than reasonably necessary to protect that legitimate business interest.
If you want to incorporate restrictive covenants into your employment contracts, you need to assess exactly what legitimate business interest you are seeking to protect, and over what period of time the protection of the legitimate interest is needed. The more tightly drafted the covenant, the more likely it will be deemed reasonable and this enforceable if tested in court. Our specialist employment team will be able to advise you and draft restrictive covenants that are relevant to your employees and business.
It is important to remember that a court will not substitute its own opinion as to what amendments to a restrictive covenant may make it reasonable. Instead, they will apply ‘blue pencil’ which effectively means that if the court considers the covenant to be too wide it will simply strike out the covenant. Careful drafting is therefore necessary to give your business the best chance of being able to enforce a restrictive covenant against a former employee.
In terms of enforcing a restrictive covenant, this will usually take to form of two distinct steps. The first would be to seek an injunction to prevent the activities of the employee who is in breach of the covenant, and thereafter a claim for damages for losses incurred as a result of the breach. Courts generally do not like issuing injunctions due to their draconian nature, and the restraint on trade they have. It is therefore important that if seeking injunctive relief, you are as confident as possible that the covenants will more likely than not be deemed reasonable.
It is also important to remember that the reasonableness of the restrictive covenant will be assessed at the time the restrictive covenant is entered into, and not at the point when an employer seeks to enforce the covenant. For this reason, it is advised that employers regularly review restrictive covenants in employee contracts to make sure they are reasonable and fair. This is often overlooked when an employee is promoted, when in fact this would certainly be an appropriate stage to undertake such a review.
Employers are also advised to steer clear of a ‘one size fits all’ approach to restrictive covenants. If everyone from the office junior through to senior management have the same covenants, their effect is likely to be diluted. If introducing restrictive covenants during the employment relationship, it is important to ensure the covenants have been accepted by the employee, and you can show consideration in order to demonstrate a binding contract. A document signed by the employee is therefore imperative, and employers should not include restrictive covenants as part of any employee handbook.