22 January 2016
What are Restrictive Covenants?
Learn all you need to know about restrictive covenants, with our clear definition and FAQs answered.
What is a Restrictive Covenant?
A restrictive covenant is a clause used in employment contracts to protect the employer's business by restricting the activities of an employee, generally after the employment has ended.
These ‘post-termination restrictions’ can, for example, stop you from joining a competitor, starting up a company in competition with your ex-employer, or from making contact or dealing with your old clients and customers.
Why are Restrictive Covenants in Employment Contracts?
Employers put restrictive covenants, or ‘non-competes’, into employment contracts usually in order to protect commercial and confidential information, the stability of their workforce and their customer connections. The restriction should go no further than is necessary in order to protect a legitimate business interest of the employer.
Employers often want to prevent their top performers (often senior executives) from joining competitors or talking to their clients for fear of the former employee taking clients with them after they leave.
Is There Likely to be a Restrictive Covenant in my Employment Contract?
If you have access to a wide amount of confidential information or have close connections with clients and customers then you are more likely to have restrictions in your contract than someone who, for example, works in a back office without access to confidential information.
It really depends on how likely you are to be in a position to take clients, employees or confidential information with you when you leave and, therefore, damage your employer’s business.
Roles where non-competes are commonly found in the employment contract include banking, brokering and executive positions. The more senior you are the more restrictive the terms of your contract are likely to be.
How Long do Restrictive Covenants Last For?
They can last for any number of months. However, the longer the period, the more difficult it may be for the employer to justify the restraint. They usually last somewhere between three and 12 months.
If you have restrictive covenants in your employment contract they usually come into effect once your notice period ends.
If you have been on a period of garden leave, your contract may say that the length of any restrictive covenant can be reduced by the period during which you are absent from the workplace.
Often employees only discover that they are subject to restrictive covenants post-termination because they haven’t checked their employment contract.
What Happens if I Break the Terms of a Restrictive Covenant?
The answer is that it depends on whether your ex-employer decides to take action against you or not.
Your employer can seek legal redress in the courts. This could consist of financial damages for any losses they suffer as a result of you breaching the terms of your contract. Alternatively, your employer could seek an injunction against you. This is a court order that prohibits you from taking a particular action, such as working for a competitor, or requires you to do something like return confidential information.
However, it’s worthwhile noting that many restrictive covenants in employment contracts are not enforceable by law. This is because the clauses go further than is necessary in order to protect the business’ interests.
It’s beneficial to speak with a restrictive covenant solicitor to find out if the clauses in your employment contract are likely to be enforceable and what the possible consequences of breaching a restrictive covenant could be. This is because you could lose out on money or opportunities by complying with the terms of a potentially non-enforceable covenant and because, if you break a legally enforceable restrictive covenant in your contract, the court can order an injunction, which could be very expensive for you.
The consequences of breaching a restrictive covenant can be very harsh. Post-termination restrictions is a complex and constantly evolving area of employment law, which is why it is best to get specialist advice if you are affected by restrictive covenants.
Call the restrictive covenant solicitors at Slater and Gordon Lawyers on freephone 0800 916 9060 or contact us online.
Want to learn more? Slater and Gordon Lawyers have made a legal advice guide on restrictive covenants.