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RESTRICITVE COVENANTS

Restrictive covenants are essentially additional clauses contained within the employment contract which relate specifically to what happens after employment has ended. They tend to be used to restrict the activities of employees who may otherwise use confidential information gained within the course of their employment for the benefit of their new employer, or for their own purposes, and, in doing so, may damage the business of their old employer.

Restrictive covenants are generally used to restrict:

  • an employee joining a direct competitor
  • an employee starting their own business in competition (or assisting someone else to do so), sometimes within a particular geography
  • the poaching of staff, customers, or investors
  • an employee joining a breakout group of employees who set up in competition
  • an employee using the employer’s intellectual property or confidential information gained during their employment for the benefit of their new employer, or for their own purposes. in a way that causes harm to the employer.

To be enforceable restrictive terms can only apply for a “reasonable” period after termination. What is considered reasonable will vary depending on the seniority of the employee and the risk to the employer. In deciding whether to enforce a restrictive term the Court will weigh the interests of the employer against the impact on the individual. Generally, covenants will be for a period of between 3 – 9 months.

In May 2023, the government announced proposals to limit the length of non-compete restrictions to 3 months, the aim being to provide employees with more flexibility to join competitors earlier or establish competing businesses, which will in turn benefit the wider economy.  Whilst a definitive date has not been set for the reform to come into force, employers should consider this when drafting these types of covenants for inclusion in employment contracts.

The government has not announced an intention to introduced legislation to limit the duration of other types of restrictive covenants, at this time.

If restrictive covenants are to be introduced to existing employees’ contracts it is important that the employee agrees to the new terms, and receives a payment as consideration, or that the variation to contract is signed under deed.  Any payment offered should be realistic for the extra protections the employer gains – the days of “in consideration of the sum of £1…..” are long gone!

While we do have the option of standard post-employment covenants within our ‘off the shelf’ employment contracts, in practice, we find that most covenants need to be very specific if they are to be both effective and enforceable. We therefore work with clients whose businesses require post-employment covenants to define appropriate, bespoke, clauses.

Disputes (which can be very expensive requiring an injunction from the High Court) can often be avoided by reminding employees of their post-employment obligations soon after learning of their intention to resign.

Typical employment law pitfalls

Standard or poorly drafted clauses may not provide the level of protection desired. Clauses that are too wide in scope or too unreasonable in requirement, e.g. where the restricted period is too long, will be unenforceable. If clearly unenforceable, such clauses are also unlikely to provide a deterrent effect.

Help and support

In addition to drafting suitable, bespoke, covenants for inclusion in employee contracts, we can also support with the drafting of  letters  for employees, whose contracts contains such clauses, when they leave, informing them of your expectations & their continuing obligations under their contract.

If you’re thinking of outsourcing your HR, payroll or employment law needs, why not contact myHRdept? Call us on 01628 820515, email us at enquiries@myhrdept.co.uk to discuss your requirements, or contact us via our website and we’ll call you back.

 

 

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