| Employers often incorporate post-termination | | | | required to protect legitimate business interests. |
| obligations into an employee's contract of | | | | Leverage for negotiations |
| employment whereby an employee agrees not to do | | | | The issues that need to be considered in relation to |
| certain things after he or she leaves the company. | | | | restrictive covenants will vary considerably from case |
| These obligations are called restrictive covenants. | | | | to case and from employee to employee and, as |
| They are designed to protect the employer's | | | | usual employers are advised to seek professional |
| business and are particularly common in the contracts | | | | guidance. The point is that covenants can work to |
| of employment of sales staff who have access to | | | | protect an employer's business. They provide |
| and intimate knowledge of an employer's customer | | | | leverage even if an employer would rather not |
| base, or senior directors and other key employees. | | | | pursue the matter to a full court hearing or |
| There are broadly four types of restrictive covenant: | | | | application for an injunction. They can be used as a |
| 1. non-compete covenants – which seek to | | | | cornerstone in termination negotiations with |
| prevent an ex-employee from directly competing or | | | | ex-employees. Details of the covenants can even be |
| working for a competitor, usually within a specific | | | | sent to an ex-employee's new employers to place |
| geographical area, for a set period following | | | | them on notice that any breach of the covenant by |
| termination; | | | | the former employee could also give rise to a claim |
| | | | | of "inducing a breach of contract" against the new |
| 2. non-solicitation/non-dealing covenants – which | | | | employer. However, the covenant must have, at |
| seek to prevent an ex-employee from entering into | | | | least on the face of it, some chance of being |
| working relationships with former customers, by | | | | enforced if it is going to be taken seriously by the |
| seeking or accepting orders for goods and services, | | | | ex-employee or his new employers. |
| for a set period following termination.; | | | | The Employee's Perspective |
| 3. non-solicitation of employees – which seek to | | | | Denying an individual the ability to work and make a |
| prevent an ex-employee from recruiting former | | | | living in an industry in which they are experienced and |
| colleagues for a set period following termination; | | | | in which they have developed a specific set of skills |
| 4. restrictions on the use of confidential information | | | | is not something which would ever be done lightly by |
| – which seek to prohibit the use of any | | | | the courts. Accordingly, covenants which seek to |
| confidential information (usually identified by a | | | | prevent any form of competition with a former |
| non-exhaustive list of examples) acquired by an | | | | employer are rarely enforced. |
| employee during employment. | | | | Also worth bearing in mind is that if an employer |
| The interests of both parties must be carefully | | | | terminates the employment relationship wrongfully, |
| balanced in order to have an enforceable covenant. | | | | for example, by failing to follow contractual |
| On the one hand employers will be understandably | | | | disciplinary procedures or by failing to give due notice |
| concerned to protect their business interests. On the | | | | under the contract, then the covenants will |
| other hand some types of restrictive covenants seek | | | | automatically become unenforceable, whether |
| to impose unreasonable restrictions on employees | | | | reasonable or not. An employer may make a |
| which on the face of it would seriously prevent them | | | | payment in lieu of notice but this will not necessarily |
| from operating in the industry in which they are | | | | preserve the enforceability of the covenants, |
| experienced. There are clearly two sides to the | | | | especially where there is no express right to make a |
| argument. | | | | payment in lieu of notice under the employment |
| The legal position for enforceability of covenants | | | | contract. |
| Restrictive covenants must go no further than is | | | | Where an employee leaves of their own accord the |
| reasonably necessary to protect their legitimate | | | | situation is different. However, the covenants still |
| business interests otherwise the covenants will be | | | | need to be reasonable to be enforceable. For |
| deemed to be unlawful restraints of trade and | | | | example, a covenant prohibiting an employee from |
| rendered unenforceable. However this fairly simple | | | | soliciting the business of former customers with |
| statement disguises the complex considerations | | | | whom they were regularly involved is more likely to |
| involved in defining what is "reasonable" and what is a | | | | be enforceable than a covenant which simply |
| "legitimate business interest" in any given | | | | prohibits contact with any of the former employer's |
| circumstance. For example, a covenant which | | | | customers, many of which the employee may never |
| prevents an employee from working for a | | | | have had contact with. |
| competitor for a period of six months anywhere | | | | Conclusion |
| within the United Kingdom may be enforceable | | | | There are simply no hard and fast rules other than |
| against a national sales director but would not be | | | | the old maxim – never enter into a contract |
| appropriate for, say, a hairdresser who only deals | | | | unless you know exactly what you are agreeing to. |
| with people in the immediate locality. Further, this is | | | | Professional advice is therefore a pre-requisite. It is |
| not simply an issue about ideas of perceived status. | | | | often better to enter into a contract containing |
| A ten mile geographical restriction might be | | | | draconian covenants which are likely to be |
| appropriate for a hairdresser working in a rural area, | | | | unenforceable, than to seek to have the restrictions |
| whereas the same restriction placed on a vet (or | | | | reduced to the point where they become more |
| indeed a solicitor) working in an urban location might | | | | reasonable and capable of being enforced. |
| well be unreasonable. | | | | At the end of it all restrictive covenants are a bit of |
| A further example can be found in covenants against | | | | a game and to get the best results case-law has |
| the solicitation of former employees. A sales manager | | | | shown, you need to know the rules. |
| might be legitimately prevented from recruiting | | | | If you would like any advice on restrictive covenants, |
| members of his former team for a period after his | | | | or any other aspect of employment law, please |
| employment ends. However, if the restriction | | | | contact Caroline Walker on |
| extended to all employees, including the office junior, | | | | cwalker@cavendishlaw.co.uk or telephone 0207 147 |
| it would be difficult for the employer to argue the | | | | 9974. |
| restriction was reasonable and went no further than | | | | |