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Are restrictive covenants enforceable?

Oct 24, 2022 | Uncategorised

When you sign an employment contract, you may be surprised to discover that it includes clauses stipulating what you can and can’t do after you leave the job.

These are known by the rather forbidding term “restrictive covenants”. Their aim is to restrict the activities of ex-employees.

From the company’s point of view, these clauses exist to protect their interests. If you’ve been employed for a long time in a company, you’ll know about their operations and strategies, their successes and failures – all of which can be used to their disadvantage.

But are these clauses enforceable? In this article, we break down the different types of restrictive covenants and look at the possible consequences of breaking them.

What are the different types of restrictive covenants?

There are two main types of restrictive covenants.

1. Non-compete clauses

Many contracts contain restrictions relating to confidentiality. Think trade secrets, manufacturing processes and business activities. Employers will seek to protect these after you leave your job.

Unfortunately for your employer, confidentiality clauses are hard to police. This is where “non-compete” clauses enter the picture. These exist to stop you from working for a competitor or from competing directly with your ex-employer.

As we’ll see, the enforceability of this covenant depends largely on its scope – in particular how long you’re expected to abide by it.

2. Non-poaching clauses

After you’ve left your company, your ex-employer will not want you to “poach” their employees or clients – for obvious reasons. Non-poaching clauses seek to prevent this scenario and are usually time-limited – to three, six or 12 months, say.

These non-poaching clauses can take two forms: “non-solicitation” and “non-dealing” clauses.

Non-solicitation restricts you from approaching clients after the termination of your contract. Non-dealing is even tougher – it’s a blanket ban on you dealing with them at all.

How enforceable are they?

If you leave a company and join the competition, you run the risk of breaching a restrictive covenant – and you could be sued for it.

If it comes to this, courts will look at the scope of the restrictions. The key phrase here is “legitimate business interests”. If the restrictive covenant seeks to protect these, it could be enforced. But if it goes beyond these, it’s unlikely to be.

What are legitimate business interests?

In the courts’ view, these include:

  • Confidential information such as trade secrets
  • Existing client relationships
  • The stability and continuity of a company’s personnel

How does the court decide if a restrictive covenant is reasonable?

The court will take into account a range of factors and ask the following questions:

  • Does the restriction last for a reasonable amount of time? An employee will struggle to justify a non-compete clause that lasts a year – but this depends on the seniority of the ex-employee. The more senior they are, the longer the covenant can last.
  • Does the covenant cover a restricted geographical area? As with time limits, the wider the area in which the ex-employee can’t work, the tougher it will be to justify.
  • Does the restrictive covenant reflect the industry standard? As you’d expect, it’s easier to enforce a restrictive covenant in an industry where this is standard practice – and the length and scope of the covenant will also be compared to the standards of the industry.
  • How senior is the employee? The more senior the employee, the tougher the restrictive covenants can be.
  • Was the ex-employee privy to confidential information or trade secrets?
  • Was there a financial incentive for the ex-employee to accept the restrictions in the first place?

All these factors will be considered in deciding whether or not a restrictive covenant is reasonable. If it’s judged to be unreasonable, the court will declare it void and not enforce it.

Do you have to accept a contract that contains restrictive covenants?

The simple answer is no: you don’t have to accept any contract. But in reality, things are a little more complicated as you may want to accept the contract with changes.

In this instance, you can ask your employer either to make amendments to the covenants or to remove them altogether. But there’s no guarantee that they’ll oblige – and an impasse could result in the job offer being withdrawn altogether.

If you’ve already signed the contract and belatedly become aware of the covenants, you can still put in a formal request to have them amended or removed. As with our first scenario, there’s no guarantee that your request will be accepted.

What if I’m planning to leave my job to join the competition?

If you’re planning to leave your job to join the competition, there are several pitfalls awaiting you. The worst-case scenario is an injunction brought against you by your ex-employer.

So if this is your plan of action, don’t go it alone – it’s in your best interests to instruct a solicitor and receive the expert legal guidance you need.

An experienced employment lawyer can help you to leave your job without being stung by claims of solicitation, poaching or competition. They can give the restrictive covenants in question a once-over to see if a challenge can be mounted against them – in other words, to check whether they protect “legitimate business interests“.

If this is your course of action, don’t delay – seek legal help to avoid any troublesome legal claims.

The short answer?

So the short answer is: yes. Restrictive covenants are enforceable. But they have to be reasonable and your employer has to be able to justify them as protecting their legitimate business interests. If they don’t meet these criteria they can be made void by the courts.

Whatever happens, the best thing you can do is have an employment lawyer on your side to help fight your corner.

Are you looking for no-jargon legal advice? Our experienced employment lawyers are dedicated to achieving the best result for you in the plainest language possible. Get in touch today for a free initial consultation.

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