Restrictive covenants – not worth the paper they’re written on?
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 unfair. However, they do recognise that employers have legitimate business interests which deserve protection and, as long as the contract clauses don’t go further than is needed to protect those interests, the clauses can be upheld.
It is critical that employers word restrictive covenants carefully. Here are some of our top tips:
- Work out what it is you’re trying to protect – relationships with clients, relationships with potential clients, supply routes;
- 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? Hairdressers often include restrictions against working within a few miles of the current salon, but a much wider area will be relevant for a European Sales Manager;
- 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? If it is likely to be very difficult to prove that the employee has breached their restrictions then it may be possible to prevent them from doing any work in competition with your business for a fixed period – these non-competition clauses have been frowned upon in the past, but the trend seems to be towards making these more acceptable; and
- 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 them regularly – duties and responsibilities often evolve and contracts don’t necessarily keep up.
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!