• Care home – HR support
• Contracts of employment
• Children’s nursery – HR support
• Disciplinary procedures
• Employee handbooks
• Employment tribunal claims
• Equality Act 2010
• Flexible working requests
• Maternity leave rights
• Redundancy procedures & business restructuring
• Restrictive covenants – employer
• Retirement age issues
• Sickness absence
• TUPE regulations
• Whistleblowing

Restrictive covenants for the employer

What to do next:

To find out more about how to protect your business, or to review, update, or introduce appropriate restrictions into staff contracts call us now on 0161 618 1032 or click here

• Do you employ senior sales staff?
• Do you entrust them with commercial business information?
• Do they have access to your customer base?
• If so, what would happen if they were to resign to join a competitor?

Restrictive covenants are clauses found in employment contracts that attempt to restrict the business activities of an employee once they have left their employer. They are commonly found in employment contracts relating to directors, senior managers, and sales executives. They are common in the fields of financial services, insurance brokerages, lawyers and indeed in any sector that is client and customer focussed. There is commonly held view that such clauses only act as a deterrent and that a Court would find them void as they are in restraint of trade in that the effect of them is to prevent an ex employee from earning a living. Whilst there is something to be said for this latter view, it does not represent the complete picture.

There is scope for appropriately drafted restrictive covenants to be upheld by the Courts and therefore protect the commercial interests of the employer.

Therefore, as an employer you may wish to consider whether it would be a sensible idea to include restrictive covenants in contracts of employment or service agreements.

Restrictive covenants come in various guises but common forms are:

1. Non solicitation or non dealing with customers
2. Non compete clauses
3. Non solicitation of staff
4. Confidentiality clauses

Restrictive covenants - Key points to consider

1. Is there anything set out in writing at all in the contract? – Courts will generally not assist an employer by “implying” any specific restrictive covenants even if it is clear that the ex employee is taking an unfair advantage. Therefore clauses need to be set out in the contract of employment.
2. Incorporation – it is generally not a good idea to set out restrictive covenants in a generic document such as an Employee Handbook. Courts will wish to be satisfied that the specific restrictive covenant has been incorporated into the contract of employment of the particular employee concerned.
3. Legitimate business interest – this is a cornerstone of enforceability – the employer must demonstrate that it has a legitimate business interest to protect – well recognised categories include confidential information, trade secrets, the goodwill developed with customers and also the benefit of having a stable workforce.
4. No more than is reasonable – this is another key factor. Having identified the legitimate business interest, the restrictive covenants must go no wider than is “reasonably necessary” to protect that interest. This is where the legal advice comes in. A good employment law solicitor will be able to conduct an assessment of your interests, and those of the employee and provide you with suggested wording for the clauses. The clauses must be tailored to the legitimate interests.

Practical issues

Aside from the nuances of the legal drafting of restrictive covenants, we suggest that you will also wish to consider practical steps to protect your business. These include:

• Control of customer information and databases – various IT solutions exist
• Rules preventing removal of databases and information
• Regular maintenance and examination of company and personal lap tops
• Rules regarding uploading of contacts and company customer details onto social media sites such as Linked In.
• Exit interviews and procedures on termination of employment
• Garden leave clauses to minimise contact with customers by departing executives
• Keeping in regular contact with key customers
• Incentivising key staff to remain and rewarding loyalty

What if a key employee is leaving and I am concerned?

Chat the matter through with your employment law solicitor who will be able to suggest key areas of risk and practical matters to consider. Develop a “termination checklist” for your business eg to ensure that key property is handed back and that a letter is sent to departing staff gently reminding them of their ongoing obligations.

In serious cases it may be appropriate to consider applying to Court for injunctive relief. However this may be a high risk process.

Disclaimer – The contents of this page are provided for general guidance only and do not replace the need to obtain legal advice about any given situation.