Are there different types of restrictive covenants?

The most common types of restrictions in employment contacts are: Non-compete clauses – to prevent ex-employees from working for a competitor for a specified length of time. Non-solicitation clause – to stop an ex-employee from approaching clients/customers to entice them away from the original business. Non-dealing clause – to prohibits an ex-employee from any dealing with clients/customers/suppliers, even if that person approaches the ex-employee first. Non-poaching of staff clause – to stop an ex-employee from enticing former colleagues to join a new company.

Are restrictive covenants enforceable?

Usually a clause in an agreement that restrains trade and prevents an individual earning a living is against public interest and not enforceable. But the law recognises that it is also in the public interest to allow businesses to legitimately protect themselves. Post termination restraints that are drafted correctly may be enforced by a court if they are no wider than necessary to protect a business’s legitimate interests.

What makes a restrictive covenant reasonable?

Post termination restrictive covenants may be viewed as reasonable if they are in a written agreement that is signed by the employer and employee, they clearly protect a legitimate business interest, and they are as narrow as possible in relation to the length of time of the restriction, the geographic area of restriction and the definition of the restricted activity.

Can I negotiate restrictive covenants I previously agreed to?

It is important to understand what exactly you agreed to in your employment contract. Obtain a copy of the signed contract, review the terms, and if necessary seek expert advice. In general, if the scope of the restriction is very wide, the duration excessive, or the geographic area of application wider than reasonable, there may be scope to negotiate covenants previously agreed to.

What if an ex-employee ignores a restrictive covenant?

If an ex-employee disregards the restrictive terms of an employment contract, quick action is needed to limit damage to legitimate business interests. If necessary a court order, called an injunction, may be applied for urgently to stop any action that is damaging a company. The new employer of the ex-employee may be joined in the court proceedings, as may current staff members who appear to be conspiring with the ex-employee to join a competitor. This may effectively therefore prevent further unlawful activity by all those people.

Can you avoid a dispute if you are hiring from a competitor?

There are steps that may mitigate the possibility of non-compete or breach of confidentiality litigation. For example, check whether there are restrictive covenants in the new employee’s previous employment contract; consider restructuring the new employee’s position for the duration of any restrictive covenants; and consider offering the competitor an amount to “buy out” the previous employee from restrictions.

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Post Termination Restrictive Covenants

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Employment and consultancy contracts often contain clauses restricting an individual’s working activity when they leave a business. These post termination restrictions, also called ‘restrictive covenants’, typically restrict the ex-staff member’s ability to work in competing businesses, to deal with clients, to try to win business from them, or to poach other staff members.

Employers regard restrictive covenants as an important way of protecting business interests after losing a key employee. However, employees want freedom to work elsewhere and do not want dealings with their business contacts curtailed. The law recognises the tension between these competing interests and looks to balance these on a case-by-case basis.

Our expertise

Our team of dispute resolution solicitors have considerable experience in advising on restrictive covenants both on behalf of employers and employees. We are best known for being proactive problem-solvers, and giving clear, pragmatic, and commercial advice that enables clients to resolve disputes at the earliest opportunity on favourable terms. But we also do not shrink from escalating legal proceedings and litigating robustly. We assist companies to protect their businesses when key employees depart. We also successfully defend such claims for executives particularly in the financial services and manufacturing sectors. We are skilled in using early dispute resolution tools, and, if the urgency of the situation demands, in both bringing and defending injunctions – which are often deployed when restrictions covenants are at issue.

FAQs

Are there different types of restrictive covenants?
The most common types of restrictions in employment contacts are:
- Non-compete clauses – to prevent ex-employees from working for a competitor for a specified length of time.
- Non-solicitation clause – to stop an ex-employee from approaching clients/customers to entice them away from the original business.
- Non-dealing clause – to prohibits an ex-employee from any dealing with clients/customers/suppliers, even if that person approaches the ex-employee first.
- Non-poaching of staff clause – to stop an ex-employee from enticing former colleagues to join a new company.
Are restrictive covenants enforceable?

Usually a clause in an agreement that restrains trade and prevents an individual earning a living is against public interest and not enforceable. But the law recognises that it is also in the public interest to allow businesses to legitimately protect themselves. Post termination restraints that are drafted correctly may be enforced by a court if they are no wider than necessary to protect a business’s legitimate interests.
What makes a restrictive covenant reasonable?

Post termination restrictive covenants may be viewed as reasonable if they are in a written agreement that is signed by the employer and employee, they clearly protect a legitimate business interest, and they are as narrow as possible in relation to the length of time of the restriction, the geographic area of restriction and the definition of the restricted activity.
Can I negotiate restrictive covenants I previously agreed to?

It is important to understand what exactly you agreed to in your employment contract. Obtain a copy of the signed contract, review the terms, and if necessary seek expert advice. In general, if the scope of the restriction is very wide, the duration excessive, or the geographic area of application wider than reasonable, there may be scope to negotiate covenants previously agreed to.
What if an ex-employee ignores a restrictive covenant?

If an ex-employee disregards the restrictive terms of an employment contract, quick action is needed to limit damage to legitimate business interests. If necessary a court order, called an injunction, may be applied for urgently to stop any action that is damaging a company. The new employer of the ex-employee may be joined in the court proceedings, as may current staff members who appear to be conspiring with the ex-employee to join a competitor. This may effectively therefore prevent further unlawful activity by all those people.
Can you avoid a dispute if you are hiring from a competitor?

There are steps that may mitigate the possibility of non-compete or breach of confidentiality litigation. For example, check whether there are restrictive covenants in the new employee’s previous employment contract; consider restructuring the new employee’s position for the duration of any restrictive covenants; and consider offering the competitor an amount to “buy out” the previous employee from restrictions.

Our cases

Advising a large group of independent financial advisors on restrictive covenants as they transition from one financial services company/network to another.
Securing a successful outcome, without court proceedings, for a former consultant in a dispute concerning copyright and confidential information said to have been obtained unlawfully from a competitor who was a larger consultancy.
Defending new employer of an individual who is accused of infringing database rights and misusing confidential information.
Negotiating an agreement to facilitate the employment by our client of the ex-director of a competing business.
Advising numerous large corporate entities on their strategic options in respect of the misuse of confidential information and breach of restrictive covenants across many sectors.

Funding litigation

Traditionally, the only option for funding most types of civil litigation in England and Wales was a retainer between client and solicitor. Concerns about how this prevented access to justice resulted in various reforms to the law over several years. These changes mean that, while a traditional retainer is still an acceptable funding option, there may be several alternatives available to potential litigation clients. Not all alternatives are appropriate is every case, but we will work with you to assess the merits of your case and the suitable funding options available to you.