All you need to know: Restrictive covenants

Pickerings Solicitors

Before you rush into any decisions about changing your job, it’s worth checking that your existing contract does not include any restrictive covenants. Employees often forget about these and the resulting dispute can prove messy and, in the worst case, prevent you from taking up a new role.

 

What is a restrictive covenant?

A restrictive covenant is a clause in an employment contract which is specifically designed to protect the company from the damage that may be inflicted by a departing employee. A leaver will often have lots of information which could be used for the benefit of their new employer, or to set up in business in competition. This can seriously harm the former employer's business.

So restrictive covenants can be entered into as part of the employment contract. They typically prevent you from doing certain things once you have left your employment. They set out binding conditions of your employment, for example, where and who you can/can’t work for, sometimes with restricted radiuses, confidentiality of clients and/or contacts, working for competitors and so on. 

Don’t forget the small print in your contract too. Check the extent to which any definitions in your restrictive covenants apply to your social media accounts or your connections on sites such as LinkedIn, Facebook, Instagram and Twitter. For example – is a ‘friend’ on Facebook a business contact or personal contact?

The consequences of breaching restrictive covenants could prove both serious and costly. 

What things can an employer protect or prevent by using restrictive covenants?

The rights that a court will allow an employer to protect are as follows:

  • Confidential information or ‘trade secrets’
  • Connections such as customers or suppliers) and,
  • Stability of the team i.e. when a departing employee encourages others to join them in moving to a competitor

Where there is a legitimate interest to protect, an employer can impose a restriction that is no wider than reasonably necessary to protect that interest. This means the restriction should be specific about the activity, geographical area, or timeframe. If the covenant is not sufficiently detailed there is a risk that it could be considered void because the scope is too wide.

 

What happens if I breach a restrictive covenant?

It depends on whether your employer is prepared to enforce the restrictive covenant.

If you breach, or are alleged to have breached, one of the restrictive covenants in your contract of employment, you may face court proceedings as your former employer may seek an injunction.

The injunction will request that you “deliver up” or destroy any confidential information you have. Such proceedings would fall outside the jurisdiction of an Employment Tribunal and would fall to the High Court (of which we have internal specialists who will be able to assist you should these circumstances arose).  The court will also be requested to ask you to cease your actions. It will then set a later date to hear full evidence, to allow both parties time to put forward their case.

The cost of seeking or defending an injunction is significant. Injunctions processes move quickly. Furthermore, if your former employer’s injunction application is successful, they will seek to recover their legal costs from you as well.

If you are served with an injunction, you should seek legal advice immediately.

At this stage it is important that you do not take any steps which might breach the terms of the injunction in any way, as a breach of an injunction is generally punishable as a contempt of Court and in some cases might lead to imprisonment.

Should proceedings be pursued against you, you will be legally required to disclose all related communications relating to the issue as your mobile phone, laptop or other work-related electronic devices. Your employer may even review all of your calls, emails, diary reminders, meeting planners and even post-it notes. 

 

Can I negotiate with my employer to lift my restrictive covenants so I can move on?

You can always try! Attitudes towards restrictive covenants can vary. Some companies put them in place as a deterrent in the hope that employees will abide by them, but do not go so far as to actually enforce. Other companies take them extremely seriously and may have a policy of always enforcing.

It may also depend upon other factors such as your job role and the nature of the restrictive covenants. Some companies may be prepared to waive some rights but not all.

 

Are my restrictive covenants enforceable?

There are a number of factors to take into account when determining whether your restrictive covenants are enforceable.

Relevant factors are seniority and status and whether you were involved in negotiating the wording of the covenants at the time you entered into them. Generally, it is easier for an employer to enforce a more onerous restriction on a senior employee than on a junior one.

Also the reasonableness of a restrictive covenant is judged at the time it was entered into.

The burden is always on the employer to demonstrate that the covenants are reasonable and valid.

So if you are thinking of making a career move and would like some advice, why not take advantage of our free first 30 minute consultation? Call Pickerings Solicitors on 01827 317070 to arrange.