Restrictive covenants – not worth the paper they’re written on? Well think again!
Wishful-thinking employees (or somewhat despairing employers) may claim that clauses which restrict what they do after their employment has ended aren’t worth the paper they’re written on – but that’s often not the case.
It’s true that, as a matter of principle, courts won’t enforce restrictions which they believe are unreasonable. However, they do recognise that employers have legitimate business interests which deserve protection after an employee leaves and, as long as the contract clauses do not go further than is necessary to protect those interests, the clauses can, and will, be upheld.
It is critical that employers draft restrictive covenants carefully AND then keep them under regular review. Here are some of our top tips:
- Work out what it is you’re trying to protect – Is it confidential information? Is it relationships with clients? Is it the stability of your workforce? Is it relationships with suppliers?;
- Be fair about the duration of any restrictions – how long do you reasonably need to re-establish those relationships? For example, a fruit and veg supplier is likely to have very regular contact with their key customers so a shorter duration will be reasonable, whereas an insurance broker may only contact clients on an annual basis so a longer period of up to a year is likely to be acceptable;
- Is a geographical restriction appropriate? Junior field sales people often work within a particular ‘patch’ or region, whereas more senior sales roles can be pan-European – what’s the right geographical remit for the restriction;
- Think about what you’re prohibiting your employee from doing – is it enough to say that they can’t actively solicit work from your customers or should they be prevented from having any dealings with them?
- Make sure that other arrangements are consistent with the restrictions – employment contracts should also protect confidentiality and intellectual property and give the right to use garden leave, but you should check that your data security and management procedures are also effective; and
- Review restrictions regularly – duties and responsibilities often evolve and contracts don’t necessarily keep up.
Reform is on the Government Agenda with the following proposals coming under consideration in 2020 – 2021 in relation to non-compete covenants:
- Requiring employers to pay compensation to the departing employee after they’ve left for the duration of the restriction; or
- Striking down all non-compete covenants such that they are no longer capable of being enforceable
The consultation closed on 26 February 2021 but we are still waiting to hear the Government’s response.
We can help you to make sure that your organisation has the best protection in place – before the employee even thinks about leaving. By the time the horse has bolted from the proverbial gate, it’s often too late! If you’d like us to conduct an audit of your contract templates and other policy provisions to ensure they are fit for purpose, please get in touch with a member of the team.