It isn't always safe to sign – or break – a contract containing restrictive covenants. If you're unsure of your legal rights, it's time to talk to an experienced employment lawyer.
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What is a restrictive covenant in an employment contract?
Restrictive covenants are often contained in your contract of employment, but they can also be found in policy documents, share rules or elsewhere. They restrict what you can do for a certain period of time following termination of your employment. This may include a 'non-compete', which prevents you from competing with your employer once you've left the business, or a 'non-deal', which prevents you from dealing with certain individuals or companies once you've left.
However, if your employer can show that the restrictive covenant is only in place in order to protect their legitimate commercial interests, and that it only extends far enough to reasonably protect those interests, a court may rule in its favour, with potentially ruinously expensive damages and a injunction for the employee a distinct possibility.
When is a restrictive covenant enforceable?
Generally, clauses contained within a contract of employment which attempt to restrict your right to compete are unenforceable because they're viewed as unlawful restraints of trade.
An employer may, enforce a post termination restriction which is drafted in a manner that is designed to go no further than reasonably necessary to protect the employer's legitimate business interests. Legitimate business interests which an employer is entitled to protect by way of post termination restrictions include:
- The employer's trade secrets or confidential information
- An employer's connections with clients
- The stability of the employer's workforce
In assessing whether a clause is enforceable, the court will consider the following:
- Is the restriction reasonably limited in time?
- Is the clause reasonably limited in geography?
- Does the clause go further than is necessary to protect a legitimate business interest, i.e. trade secrets, customer relationships or protecting the workforce?
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