Restrictive covenants for the employee

Are you being asked to agree to an employee restrictive covenant?
Have you received allegations that you are in breach?
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0161 618 1032 or click here

I am concerned about clauses within my contract of employment which appear to stop me working after I leave - will this be a problem?

A restrictive covenant is a clause within an employee’s contract of employment which restricts the activities of an employee after the termination of employment.

What types of clauses are there?

These are the four main types of post termination restriction commonly found:–

Non-solicitation covenants – these attempt to restrict an employee from poaching customers or employees of a former employer;
Non-dealing covenants – these attempt to restrict an employee from dealing with a customer of the former employer, regardless of who approached who;
Non-competition covenants – these restrict an employee from working for a competitor of the former employer or setting up a business in competition;
Restrictions on the use and disclosure of confidential information – these attempt to restrict the employee from using confidential information belonging to the employer.

Are these clauses enforceable?

As a starting point, these clauses may be deemed to be void and unenforceable for being anti-competitive in nature. Restrictive covenants may however in certain circumstances be enforceable if the ex-employer can show that the restriction goes no further than necessary to protect the legitimate interests of their business.Legal advice is often required on this issue.

What if the restrictions are not set out in my contract?

To be valid, there must be evidence that the clause has been incorporated as a term within your contract of employment. The burden of proof is on your ex employer to demonstrate this. There are often issues of contracts being unsigned, or purported restrictions being contained in documents other than the contract of employment, for example in offer letters or Employee handbooks.

Also, the employer may have sought to introduce a new or amended contract part way through employment.

What will happen if there is an allegation that I am in breach?

Your ex-employer could choose to do one or more of the following:–

Write to you to “gently remind” you of your restrictions. This is quite common.
Write to you (and also any new employer) setting out the allegations that you are in breach and requesting undertakings that you will desist from any further breaches and observe the restrictive covenants. This will usually be accompanied by the threat of an injunction and a requirement to pay damages and legal costs.
Issue an immediate Court application for an interim injunction against you/ any new employer preventing you from continuing to breach the terms of the restrictive covenants and seeking other appropriate Court Orders. This happens relatively rarely. You may or may not receive notice of the injunction hearing. If the injunction is granted in your absence you will have the right to return to Court on a return date to put any relevant arguments that you have;
Issue a Court action for damages in respect of the breach of covenants. This does not tend to happen immediately and there will often be correspondence between the parties in advance of this. A Court action for damages normally follows where for some reason an injunction is not appropriate. Your ex employer will need to produce evidence of losses which have been caused by any breach of obligations. This is sometimes difficult.

I do not have a written contract - am I free to compete?

You may not be out of the woods. There are implied duties that apply during the course of employment even if you don’t have a contract in writing. This may mean that you could be restricted from “taking advantage” of your former employer in terms of business opportunities and customers that may be said to have been “diverted away” or potentially the misuse of your ex employer’s information and data. Each case, and therefore the degree of risk, very much depends upon its facts.

Case Study

We were contacted by a recruitment consultant who had set up his own business. He received a letter from his former employer making allegations that he had taken confidential information and had unlawfully solicited customers. It was alleged that there had been breaches of various legal obligations. An injunction and a damages claim were threatened.

We were able to establish that there was no legal basis for the claims that were threatened. The matter was able to be resolved with a minimum of formality and expense.

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.