Restrictive Covenants
Clauses preventing employees from competing with former employers
Clauses preventing employees from competing with former employees are often seen in Contracts of Employment. These clauses set out restrictions on the employee’s conduct after termination of employment and are usually referred to as restrictive covenants.
Examples of such clauses are:-
- Setting up a competing business or working for a competitor (non-competition clause).
- Seeking business from ex-employers’ customers (non-solicitation clause).
- Persuading other employees to leave and go to the new employer (non-poaching clause).
- Dealing with ex-employers’ customers even if the client approached the employee (non-dealing clause).
Such clauses are important as an employer will want to protect its business and customer contacts. We are often asked by employees and employers whether such clauses can be enforced.
Generally the courts do not like restrictive covenants. The general rule therefore is that restrictive covenants are only enforceable if they are reasonable. They must be no wider than necessary to protect the legitimate business interests (e.g. customers) of the party seeking to enforce them (i.e. the employer). Such clauses must therefore be reasonable in scope (area and time). The clause must be clearly expressed otherwise it will not be enforced. Such clauses are only likely to be enforced if the person involved could realistically harm the employers business if they left employment and the restrictions were not in place. Reasonableness is assessed at the time the Contract of Employment is signed and it is therefore important to keep the issue under review particularly when an employee is promoted.
Breached Clauses
We are also asked what can be done if such clauses are breached. An employer can claim an Injunction which is an Order of the Court requiring the employee not to do something. An employer can also claim compensation/damages if he has suffered financial loss which will often include an account for loss of profits or the profits made by the employee.
If you would like more advice on restrictive covenants and employment issues please contact us.
