A restrictive covenant is a clause contained in an employment contract prohibiting an employee from undertaking certain commercial activities once their employment has been terminated. Such covenants protect employers and bind employees for a defined term from also disclosing confidential information and trade secrets, strategic and client information to a competitor. The consequence of breach are harsh.
The most common restrictive covenant employed in an employment contract in competitive industries is the non-compete clause that in effect operates to prevent employee from working for an employer’s direct competitor upon termination of a contract of employment. These clauses are designed to protect an employer’s connections, confidential information and trade secrets.
However, they will not be enforceable if they unduly restrain trade or competition. As such, employers cannot prevent an ex-employee from becoming a competitor on that basis alone. They can, however, protect themselves when the restrictive covenant is designed to protect a legitimate interest of their business. They are draconian as they can tie-in an employee for up to 12 months restricting re-employment.
Non-Solicitation and Non-dealing Clauses
A non-solicitation and non-dealing clauses essentially prevent employees from soliciting or poaching staff or dealing with the employer’s clients by using their experience and insider knowledge of the trade acquired during their course of employment. The test if whether they are designed to and do indeed protect legitimate business interests.
Two other clauses found in the family of restrictive commercial covenants are confidentiality and garden leave clauses. The former restricts the employee from disclosing confidential data for a defined period, and garden leave, requires the employee to spend notice period at home to prevent the employee from sharing client data and contacts to competitors.
What we can do to assist
The remedy for breach is to enforce the post termination by seeking an injunction and there are numerous factors that have to be considered by the courts to grant an order such as the jurisdiction or geo-graphical location in which the clause is intended to apply. If drafted too widely the courts will not enforce a breach of the clause.
Restrictive covenants are draconian as they restrict employment or trade. It is a complex area of law. Having a properly drafted, and continually reviewed, restrictive covenant is crucial for any employer wishing to protect their business. Our employment solicitors have the knowledge and experience to advise you on how to do just that.
Employment Lawyers, Canary Wharf, London
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