Restrictive Covenants – A Guide for Employees

Restrictive Covenants are generally found in employment contracts and seek to prevent employees from competing with the employer when employment ends.  They can have a chilling effect on your ability to move jobs limiting the options which may be available to you should you choose to leave and impacting upon your career prospects.

Below we set out some key information all employees should reflect upon before moving jobs if you have restrictive covenants in your employment contract.  Alternatively please do contact our team of specialist employment lawyers who will be please to help steer you through this particularly tricky area of employment law.

What Types of Covenant Are There?

The most common types of restrictive covenant are;

• A non-compete restriction designed to prevent you from working for a competitor for a period of time
• A non-solicitation restriction is intended to prevent you from seeking business from specific clients or prospects
• A non-dealing restriction prevents you from having any business dealings with specific clients or prospects
• A non-poaching restriction prohibits you from enticing certain employees away from the former employer’s business
• A non-interference restriction will prevent you from seeking to interfere in the former employer’s relationship with a supplier.

Covenants will typically last for between 3 and 12 months.

Are Restrictive Covenants Legal?

In a word, yes.  There is a misconception that restrictive covenants are legally invalid or that employers are reluctant to enforce them.  This is untrue, the Court uphold restrictive covenants every day.

The Courts will apply various tests when considering whether to enforce restrictive covenants including;

1. Does the restriction seek to protect a legitimate business interest?
2. Is the restriction reasonable to protect that legitimate business interest?  Including;
   1. Is the duration reasonable?
   2. Is the geographical coverage reasonable?
   3. The degree of interaction between you and the particular client, employee or supplier.

What Are The Legitimate Business Interests?

The legitimate business interests can include protecting confidential information and trade secrets and also the employer’s relationships with it’s customers, suppliers and staff.

For example an employer has a legitimate interest in preventing you from unfairly using your relationship with a customer whom you only met as a result of taking up your employment.  It is arguably appropriate to seek to prevent you from using that relationship for the benefit of a competitor business. 

They would not however have a legitimate business interest in preventing you from dealing with a customer of the business with whom you have never met or interacted.

Can I Refuse To Sign an Employment Contract Containing Restrictive Covenants?

Yes, there is no obligation on you to agree to any restrictive covenants.  An employer may well be prepared to negotiate with you to remove certain covenants or limit their duration, however it is possible that the employer will simply withdraw the job offer.

If the covenants are included in a new update employment contract as opposed to your original employment contract then you are in a stronger position to negotiate as you can always fall back on your existing contract should the employer not be willing to negotiate. 

What Can My Former Employer Do If I Ignore The Covenants

If you ignore your restrictive covenants then your former employer can look to instigate legal proceedings against you for your breach of covenant.  As proceedings can often take many months before going to Court the former employer can also seek an interim injunction against you which is a Court Order compelling your compliance with the covenants pending the outcome of the legal proceedings.

These Court actions can escalate extremely quickly and become very costly and so it is critical that you seek urgent legal advice if you are threatened with legal proceedings.

How Can We Help?

Nockolds’ specialist Employment Team has decades of experience negotiating restrictive covenants and fighting them in Court.  We will often help to advise employees as they seek to negotiate their employment contracts upon receipt of their job offer or new employment contract. 

As and when litigation is threatened we can also act urgently to advise on the risks involved and provide a robust defence to the claim if that is required.

If you are concerned about protecting your business from unfair competition by former employees please contact our team on 0345 646 0406 or fill in our online enquiry form and a member of our Team will be in touch.