Restrictive covenants are conditions placed within a contract of employment to protect an employers interest should that employee leave. Restrictive covenants are always considered by the courts to be invalid unless the employer can show that they were required to protect an employer’s legitimate business. In order to be valid a restrictive covenant should not be wider than is necessary. A world wide, indefinite restrictive covenant is likely to be held to be invalid in most situations and it is advisable for employers to seek legal advice before proceeding down this route.
There are several types of restrictive covenant but the most common are:
- Non-compete clauses
- Non-solicitation and non-dealing clauses
- Non-poaching clauses
What is included within a restrictive covenant?
Non-compete clauses will restrict an employee from joining a competitor (or starting up in competition with the employer) after they have left employment. It is normal for an employer to include an ‘area restraint’ within such a clause. This would confirm that the employee would not be able to work for a competitor within a certain number of miles of the employer.
Non-solicitation and non-dealing clauses prevent an employee from contacting or trying to entice the employers customers or suppliers away from them after they have left employment. Such a clause should be limited to customers/suppliers that the employee was in direct contact with during their employment although can be extended to any ‘potential clients’ provided that the same is carefully defined within the contract.
Finally, non-poaching clauses prevent an employee from approaching other employees in order to try and persuade them to leave employment with the employer.
In order for a restrictive covenant to be held to be valid an employer should include a time limit. What time limit to include will depend upon the employer’s individual business and does vary significantly from business to business.
Who decides whether to include restrictive covenants?
Restrictive covenants protect an employers business by preventing employees from working in competition, taking clients or staff with them when they leave employment. As such, it is the employer who will want to include restrictive covenants within their contracts. By their very name restrictive covenants restrict employees and as such it is unlikely that an employee would elect to include restrictive covenants within their own contract.
When are restrictive covenants needed?
Restrictive covenants should only be included within a contract if the employer can prove that the same are present to protect a legitimate business. They should not be included within contracts ‘as standard’ and employers should consider whether they are necessary in each individual case. Restrictive covenants are unlikely to be appropriate for junior staff members.
Can a restrictive covenant be removed or appealed against?
Like all contractual clauses restrictive covenants are negotiable. That being said, employers will usually have more bargaining power when negotiating a contract and may well have a standard contract and will not accept any amendments. If you are an employer who would like to include a restrictive covenant within your staffs contracts or an employee who has questions in respect of restrictive covenants within their contract you should discuss the matter with a specialist Employment Law Solicitor.