Restrictive Covenants

Restrictive Covenants are terms in an employee contract that provide a certain level of protection for employers.  Anyone who leaves a business knowing the strategies, technologies and client list, will be very appealing to competitors in the same industry.

Typically, a restrictive covenant is a contractual clause that prohibits an employee from working with competing companies for a period of time after termination of employment.

Types of restrictive covenants

  • Non-competition covenants – restrictions on the former employee working in similar employment for a competitor
  • Non-solicitation covenants – which prevents poaching of clients/customers/suppliers of the former employer
  • Non-dealing covenants – which prevents a former employee from dealing with former clients/customers/suppliers, regardless of which party approached the other
  • Non-poaching covenants – which prevents an employee poaching former colleagues

Enforcing restrictive covenants

Employment terms and conditions are not a ‘one size fits all’ document, especially when it comes to restrictive covenants.  For them to be enforceable, the clause must be justified and suitably narrow.  Employers must be able to demonstrate that they’re necessary for the protection of your business.

Certain factors to be mindful of

  • The logistics
    • geographical restrictions (e.g. within 20 miles of your business)
    • Length of time for the restriction (e.g. 12 months)
  • What activities you’re restricting
  • The type of interest you want to protect
  • Being prepared to give evidence

 

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