Restrictive covenants in employment law

RESTRICTIVE COVENANTS IN EMPLOYMENT LAW

It is common for employers to want to protect their business by inserting restrictive covenants into their employment contracts. But restrictive covenants need to be very specific to ensure that they will be enforceable by a court.

The most common types of restrictive covenants are non-compete, non-solicitation and non-poaching clauses.

For a restrictive covenant to be enforceable, it must go no further than is reasonably necessary to protect the legitimate business interests of an employer. When evaluating restrictive covenants, a court will weigh up the rights and freedom of an employee to work at a place of their choosing against the need of their employer to protect its interests.

Examples of legitimate business interests could include confidential information, client relationships or employees. An employer needs to be very clear as to what the business interests it is trying to protect are from the outset. This will make it easier for the employer to draft the restrictive covenants in a precise way.

When drafting a restrictive covenant, one of the key things to consider is the role and seniority of the employee in question. It will probably not be reasonable to impose a six-month non-solicitation clause on a junior employee who is not in regular direct contact with the company’s key clients. If a restrictive covenant is considered inappropriate for a particular role or is considered to be too wide, it will likely be found to be unenforceable.

The length and scope of the covenant are also important elements to consider. A covenant which is considered too long by the court will be unenforceable. Likewise, a global or even a national covenant will be considered too broad if the aim is to protect business interests in a particular region or area. An employer must consider what length of time is necessary to protect its business interests, for example its confidential information or client relationships. The reasonable length for a covenant can also depend on the industry in which the company operates.

Restrictive covenants should be kept under regular review. If the objectives, business needs or the scale of the company changes, so should employees’ restrictive covenants. Similarly, if an employee is promoted, it may be necessary to update the covenants to reflect their new level of seniority or the new clients or confidential information they’re dealing with.

In a nutshell, an employer needs to be very clear from the outset what business interests it is seeking to protect. An employer should get independent legal advice to ensure that any restrictive covenants are well drafted are as precise and unambiguous as possible.

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