What is a restrictive covenant?

A restrictive covenant typically restricts the activities of an employee after they have left the business for a defined period of time. This is done to protect legitimate business interests.


Which types of restrictive covenant should you consider?

The most common types of restrictive covenants are:

  • Confidentiality Clauses – which impose a duty on the ex-employee to keep your business information a secret
  • Non-poaching clauses – which prevent your ex-employee from taking your staff to new employment or a business
  • Non-compete clauses – which prevent the ex-employee from working for a competitor or seeking to set up a competing business
  • Non-solicitation clauses – which impose a duty for an ex-employee not to approach your business’s existing or prospective customers or clients with a view to doing business with them

You should select the covenant or covenants dependent upon your business needs and the kind of activity you’re trying to protect against. Including more onerous restrictions than absolutely necessary can increase the likelihood that your covenant will be found to be unenforceable if challenged.


Which clauses should be in every contract?

Restrictive covenants should be bespoke additions to individual employment contracts, differing depending on the seniority of the staff member, their connections and the information they will have access to during their employment.


Are restrictive covenants enforceable?

As any type of restrictive covenant restricts the autonomy of an employee, they can be perceived by some as unfair or onerous. However, provided restrictive covenants are carefully drafted to ensure that they are no wider in scope than is necessary to protect your legitimate business interest then these clauses can be beneficial to your business.

You should ensure:

  •  your covenant is clear about who constitutes a competitor
  •  your covenant is clear about what constitutes a competitive activity
  •  your employee has fully read and understood the clause before they enter into the agreement
  •  restrictions should be carefully drafted to ensure that they are no wider than needed to protect your legitimate business interest.

A one-size-fits-all approach is not enforceable when it comes to restrictive covenants. You need to draft bespoke restrictions for each level of employee.

More senior employees will likely have access to more sensitive or important information than those at a junior level. Therefore, more senior members of staff will need more detailed restrictions applied to them should they decide to leave the company.


Can you stop an employee from working for a competitor for a year?

In general, restrictive covenants can last for up to 12 months, but the longer a restrictive covenant, the harder it will be to enforce in a court of law. For junior employees, it’s unlikely you would need to enforce a covenant for such a length of time.

However, if an employee is extremely senior and knowledgeable about unique business practices, specific trade secrets and client strategies, you might require a 12-month restrictive covenant.

You should determine the length of a restrictive covenant on a case-by-case basis, dependent on the employee’s length of service, seniority and client knowledge.


Garden leave and restrictive covenants

Garden or gardening leave refers to the practice of asking an employee who is in the process of leaving your company to cease all work and attendance during all or part of their notice period. The employee will still receive full pay during this time.

This process prevents the immediate entry of skilled and knowledgeable employees into the competitive market. It also allows your current employees time to foster meaningful relationships with clients, customers and suppliers of the ex-employee, situating your business as the preferred choice.

You can choose to place an employee on garden leave and also enforce a restrictive covenant, as long as the terms of the covenant are justifiable and precise. Both clauses also need to be present in the employment contract for them to stand up in a court of law.

Usually, any time spent on garden leave reduces the overall duration of the restrictive covenant. For example, a restrictive covenant of six months would generally be reduced to three if the employee were to spend those three months on garden leave.

When drafting a restrictive covenant for your employment contracts, the key factor to remember is that for a restrictive covenant to be enforceable, it needs to be tailored to the individual’s employment and be relevant to the legitimate business interest you are seeking to protect.

Contact us today for specific legal advice, the specialist solicitors at Beecham Peacock are on hand to assist you.

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