Employers often choose to include restrictions within employment contracts. Workers who sign up to the restrictive covenants are agreeing not to do certain things once their employment is over.
These restrictions work to protect employers by preventing their previous employees from using the knowledge and information gained at the workplace for the benefit of their new jobs.
Restrictive covenant enforcement FAQs
Restrictive covenants can sometimes not be imposed. Therefore, we would recommend that you check that the restrictions included in your contracts are legally compliant and enforceable, so that your business interests can remain fully protected.
Our employment law solicitors at Linder Myers can provide valuable help and support to businesses looking to draft up and review their employment contracts. As we are dedicated to providing legal guidance for all employment law issues, we have answered our frequently asked questions on restrictive covenants to help you better understand whether your terms are completely enforceable.
If you need any further restrictive covenant enforcement advice or would like the Linder Myers team to draft up or review your contracts, contact Alan Lewis on 0161 837 6807 or email us at firstname.lastname@example.org.
- Are restrictive covenants enforceable?
- What is reasonable?
- What is a legitimate business interest?
- What is a reasonable duration?
- When might a breach of contract be considered?
- Are restrictive covenants just a deterrent factor?
- What are common restrictive covenants?
- What counts as confidential information?
- What remedies are available?
Q: Are restrictive covenants enforceable?
In general, if you rely on a one size fits all policy when drafting restrictive covenants, it risks them being unenforceable.
Certain restrictive covenants will be enforceable, if you are able to prove that they are:
- necessary to protect legitimate business interests; and
- of a duration no longer than is necessary to protect those interests
However, they cannot be used as a restraint of trade. If you try to deny an employee the right to make a living in their chosen industry or profession, this will be taken seriously by the court. For example, an employment contract that imposes a blanket ban on a person working for a direct competitor, even for a short period of time, is unlikely to be enforced.
It is therefore important that restrictive covenants are carefully drafted. In the event that an employee challenges their restrictive covenant enforcement in court, you need to convince the court that the restrictions were sufficiently narrow so as to be properly enforced.
The extent of the restriction should also be relative to a person’s position in a business. For example, it can be acceptable for a senior employee with access to sensitive information to be subject to more heavy restrictions, as opposed to a junior employee with no access to sensitive information.
Q: What is reasonable?
What counts as a reasonable restrictive covenant depends on the nature of your business. However, by way of example, a restriction preventing a worker from soliciting your business or clients is more likely to be imposed than a covenant which simply prohibits contact with any customers or clients, many of which the employer may never have had contact with.
Similarly, a restrictive covenant preventing a person from working in the same industry within 10 miles of your premises is more likely to be enforceable than a covenant which simply prohibits them from working in the same industry within the UK, particularly if you do not have a UK wide presence.
Q: What is a legitimate business interest?
This is not intended to be an exhaustive list and a lot will depend upon the nature of your business.
However, restricting a person from working in an industry where they could damage your business by using information such as trade secrets, client database, details of pricing structures, tendering strategies etc (essentially any information that could cause serious damage your business if used it to provide an advantage to the new employer) may well be legitimate. This depends on whether it is reasonable and that the time period is no longer than is necessary to protect those interests.
It may also be legitimate to restrict a person from working for a competitor for a period of 6 months anywhere in the UK if you are a national sales director and have a presence all through the UK. However, it would not be legitimate for the same restriction to be applied to a junior sales assistant who only operates in one region.
Q: What is a reasonable duration?
It is rare that the court will enforce a restrictive covenant that lasts for over 12 months, unless there are exceptional circumstances.
Typically, the court would only impose restrictions of no more than 6 months, provided of course that they are reasonable and necessary to protect a legitimate business interest.
Q: When might a breach of contract be considered?
Even if you tick all the boxes for a restrictive covenant to be imposable, there are situations that can still render it void.
If you terminate a contract of employment in a wrongful manner, then this is technically in breach of contract. This means that any restrictive covenants contained within it are automatically void, even if they would otherwise be enforceable.
One common breach is making a payment in lieu of notice (i.e. paying notice period without a person working it) in the absence of an express contractual right to do so. In these circumstances, it is unlikely that any contractual restrictions could be enforced.
Bear in mind that this is not the case if a person resigns, rather than being dismissed. If they resign, they remain bound to the restrictive covenants.
Q: Are restrictive covenants just a deterrent factor?
Quite often restrictive covenants are inserted into contracts of employment, purely as a deterrent. However, when drafted up by our employment law solicitors, you can trust that they can be enforced properly and used to protect the interests of your business.
Q: What are common restrictive covenants?
Restrictive covenants can take many forms, but the most common restrictions are:
- Non-compete – This type of restriction prevents a person from directly competing or working for a competitor, usually within a specific area (e.g. 10 miles of your employer’s premises) and/or for a specific period of time (e.g. 6 months from termination).
- Non-dealing – This type of restriction prevents a person from working for your customers, clients and suppliers for a specific period of time (e.g. 6 months from termination).
- Non-poaching – This type of restriction prevents a person from enticing staff away from the business, again usually for a specific period of time (e.g. 6 months from termination).
Q: What counts as confidential information?
While there is no specific restrictive covenant that deals with confidential information, an employee is under an implied duty not to use confidential information following the termination of their employment, whether by reason of resignation or dismissal.
Confidential information is usually defined in a contract of employment but typically includes client information, customer accounts, price lists and quotes for tenders.
However, you can’t prevent a person from using their “skill and knowledge”, even if they acquired the skill and knowledge whilst working for you. For example, if a person has been employed as a joiner and learnt a new method of joining two pieces of wood together, this would become part of their skill and knowledge, which they are free to make use of, even for a competitor.
It is understandable that you will want to protect your business interests. However, imposing unreasonable and more importantly unenforceable restrictive covenants should be avoided.
Q: What remedies are available?
If you believe an employee has breached their restrictive covenants, you can seek an injunction. An application is typically made for an interlocutory injunction pending a full trial, i.e. the court will attempt to put an immediate stop to what the employee is doing and hear the full evidence at a later date.
Whether or not an interlocutory injunction is granted will depend upon whether the court is satisfied that there is a serious question to be tried. That is, that the claim is not frivolous or vexatious and the so-called “balance of convenience” lies in favour of granting or refusing the interlocutory injunction. The court will consider:
- whether damages would be a sufficient remedy at trial – this will not be the case where damages are unquantifiable, and/or where the employee may not have the means to pay them
- whether more harm will be done by granting or refusing an interim injunction
- where factors are evenly balanced, the court will favour preserving the status quo
- any delay in making the application or acquiescence on the part of the employer; and
- the conduct and dealings of the parties.
When you claim damages for breach of a restrictive covenant, you will need to show some loss resulting from the breach. This will normally be loss of profits on contracts or opportunities.
Often it is hard to prove that contracts or opportunities would have definitely been secured, had it not been for the breach. In such instances, the court is likely to evaluate damages based on the chances you have been deprived of. While assessing damages is not easy, the court is unlikely to use this fact to acquit the employee from paying damages for their breach.
Review your restrictive covenants with Linder Myers
Whilst restrictive covenants can protect your business interests, we have shown that having restrictions in your contracts does not necessarily mean that they are enforceable.
If you are concerned about the restrictions currently included within your employment agreements, our expert employment law solicitors can review the terms to make sure that they are completely imposable. The legal team can also work to draft up new restrictive covenants completely tailored to your business requirements, if your company does not already have any restrictions in place.
For specialist help and support regarding restrictive covenants from Linder Myers, contact Alan Lewis on 0161 837 6807 or email email@example.com.Find out more about our Employment department