Restrictive Covenants? What you need to know
In order to protect your business it is vital to understand restrictive covenants and how to use them in your employment contracts. An ex-employee who possesses insights into your classified data, customers, and suppliers could become a substantial liability if they join a rival company or launch their own competitive venture. Therefore, when creating and negotiating employment contracts, consider what restrictions you would like to place on your employees or consultants if they resign, the contract ends, or are terminated. Including restrictive clauses that your employee or consultant has agreed to in writing could provide your business with legal protection and help you enforce these restrictions if the employee attempts to breach them.
In this blog, our specialists in Employment Law and Dispute Resolution have collaborated to answer frequently asked questions regarding the advantages of restrictive covenants in an employment contract and the process for enforcing them if issues arise.
What are restrictive covenants?
Regarding an employment contract, restrictive covenants (also called post-termination restrictions) are a common feature of employment contracts and can help protect your business through periods of staff turnover. They are intended to survive the end of the employment relationship and prevent those employees from compromising your business interests by, for example, setting up a business in direct competition with you, going to work for a company that operates in direct competition with you, attempting to solicit your clients, customers or staff, or divulging trade secrets or confidential information.
How do restrictive covenants work?
Drafting restrictive covenants requires careful consideration. These covenants should be specific, tailored to the role and go as far as is reasonable to protect your business interests. You should decide on a timeframe for the restrictions to apply, which may typically exclude any garden leave or notice period and geographical scope, such as a ten-mile radius of your premises. It is also essential to update the restrictions if an employee is promoted or starts a new position in your company to ensure that the covenants apply to their current job role. If an ex-employee breaches these covenants, they may be liable to a claim for breach of contract, and you may be able to recover losses incurred as a result of this.
Why are restrictive covenants important for employers?
Restrictive covenants can provide businesses and employers with legal protection, covering matters such as:
- Protecting Business Interests: They help safeguard a company’s confidential information, client base, and trade secrets from being used by departing employees to benefit competitors. They are designed to protect a former employer’s confidential information, customer connections and the stability of its workforce by preventing an employee from using connections or information they were made privy to during their employment for the benefit of a new employer or business venture.
- Preventing Client Poaching: Restrictive covenants can deter ex-employees from approaching or soliciting clients they had dealt with during their employment.
- Safeguarding Intellectual Property: They help prevent former employees from disclosing or using IP information, which can be vital in technology, research, or creative industries.
Are there different types of restrictive covenants?
Yes, there are various types, including non-compete clauses (which prevent ex-employees from working for competitors), non-solicitation clauses (which restrict solicitation of clients), and non-disclosure clauses (which prevent the sharing of company secrets).
Are restrictive covenants enforceable?
Standard contract clauses restricting an employee’s activities after employment ends are typically invalidated due to their conflict with public policy and being viewed as a form of trade restraint.
Therefore, the enforceability of any restrictive covenants is fact-specific to each case.
What should an employer do if they suspect a breach of a restrictive covenant clause in an employment contract?
If a former employee breaches legally binding restrictive covenants, the former employer can resort to specific measures to remedy the situation. One of the first steps includes sending a cease-and-desist letter to the former employee, detailing the alleged breach, and requesting compliance with the covenant in issue. Typically, the letter will specify a deadline for a response.
If a former employee does not respond or refuses to comply, the employer may need to consider legal action. Legal remedies could involve filing for an injunction to prevent ex-employees from committing further breaches and commencing a claim for damages for the losses the employer has suffered due to the breaches by the employee.
Can the dispute be resolved without legal action?
In most cases, it is advisable to attempt to resolve the dispute through negotiation or alternative dispute resolution (ADR) methods like mediation. This can save time and costs compared to litigation. It is also important to note that the courts typically view those who do not attempt to resolve disputes through ADR unfavourably when it comes to deciding who should pay costs at the conclusion of any court proceedings.
Remember, pursuing a claim for breach of restrictive covenants can be legally complex and should be approached carefully. It is crucial to seek legal advice and representation from specialists in this area of law to protect your interests and rights as an employer.
Legal Advice for Employers in Stevenage, Corby and Northampton
At Tollers, our employment lawyers in Stevenage, Corby and Northampton are experienced in assisting former employers in pursuing ex-employees who breach their restrictive covenants. We can advise on whether the restrictions you seek to rely on are enforceable and, with our experience, can help you protect your business from further damage caused by an ex-employee’s breach of such restrictions.
Should you require further information or assistance, please get in touch or contact us on 01604 258558 or complete the form below.
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