Expert advice on restrictive covenant clauses in employment contracts
Restrictive covenants in employment contracts (also referred to as post-termination restrictions) can protect your business and its important, sensitive and invaluable information from use by your employees after they have ended their employment.
Terms which are implied in employment contracts provide you with a level of protection throughout the duration of the employment relationship. A restrictive covenant clause can provide your business with enhanced protection during and importantly, after the worker’s employment.
Restrictive covenant clauses should be considered for all senior, managerial or sales-focused roles as well as any areas of your business where employees have access to confidential information or build relationships with your key customers and staff.
What can a restrictive covenant clause prevent?
A restrictive covenant can prohibit the following:
- Employees leaving your business and immediately joining a competitor.
- Ex-employees from undertaking similar work or competing with your business for a specific duration of time.
- Ex-employees from approaching your customers and even prevent them from dealing with customers who approach them.
- Ex-employees poaching other members of staff to join them in a rival enterprise or at a competitor.
What are the different types of restrictive covenants that can be used in employment contracts?
The different types of restrictive covenants that can be used in employment contracts are:
- General confidentiality covenants – the employee is legally bound to not reveal any sensitive information about you or your clients – this could be your client list, price list or information about your relationships with suppliers.
- Non-competition covenants – the ex-employee cannot work for a market competitor and/or cannot set-up their own business in the same industry/sector.
- Non-poaching covenants – the worker is prohibited from approaching your current or former employees.
- Non-solicitation covenants – the employee cannot approach your company’s customers and/or suppliers.
- Non-dealing covenants – the worker cannot correspond with your customers and suppliers, even if the customer/supplier approaches them in the first instance.
Including restrictive covenants in employment contracts sends a strong message to employees about your expectations for when the employment relationship ends.
In order for the restrictive covenant to be enforceable though, they will need to satisfy various criteria. Broadly speaking they will need to be no more restrictive than necessary to protect the business’ legitimate interests. This will involve narrowing the scope of restrictive covenants in terms of duration and geography, for example.
Should an appropriate and enforceable restrictive covenant be in place and the employee breaches it, then you may be able to seek an injunction against them – prohibiting them from continuing,
How we can assist with restrictive covenants in employment contracts
When it comes to implementing restrictive covenants in employment contracts there shouldn’t be a one size fits all approach, as it can risk the clauses being unenforceable. This is why expert legal advice should always be sought.
At Nelsons, our highly regarded Employment Law team in Derby, Leicester and Nottingham can provide advice in relation to drafting restrictive covenants in employment contracts to ensure that they are legally enforceable and suitable for your business.
Once in place, restrictions should be regularly reviewed to ensure that they are still appropriate and fit for purpose. They should be reconsidered every time someone is promoted or changes role for example.
If you are concerned that an employee may be planning to leave and breach their restrictions or that they are already doing so, you should seek expert legal advice immediately to limit the potential impact on your business. There are various options to be considered to assert your rights and litigation isn’t always necessary.
Our team have many years’ experience in dealing with restrictive covenant clauses and have exceptional knowledge and expertise in this area of employment law.