Employment Restrictive Covenants

When one of your valued employees leaves your business, you may have understandable concerns about them working for a competitor, taking on your clients, using your sensitive data, or setting up their own business using your contacts and expertise.

To prevent this, there’s something called a restrictive covenant which can protect you and your business from this very thing.

What is a restrictive covenant?

An employment restrictive covenant is a clause in a contract that prohibits an employee from competing with an ex-employer. These can usually last for a set period after the employee leaves the business. Depending on the type of clause, it can restrict employees from dealing with your customers, poaching your employees, or benefitting from your company in ways that are damaging to your business.

Restrictive covenants in employment contracts

There are five types to use within your employment contracts and documentation, including:

1. General confidentiality: It’s unlawful for the employee to divulge sensitive information about you or your clients.
2. Non-competition: Prohibits the employee from working at a competitor or setting up on their own in the same field.
3. Non-poaching: Prevents the staff member from poaching former colleagues/current staff from your organisation.
4. Non-solicitation: Prohibits the employee from poaching your clients, customers and suppliers.
5. Non-dealing: The employee can’t deal with your clients, customers, or suppliers, even if they were approached by them.

Duration of restrictive covenants

You should always specify within the clause the duration that the clause should take effect and be able to justify it. For example, a restriction of more than 12 months will be difficult to justify as most clauses are in effect for approximately 6-12 months. You should also specify the geographical location too, if applicable.

When it comes to employment restrictive covenants, specificity is key. For example, restricting a former employee to not work for a competitor within a 100-mile radius is unlikely, but you may restrict them from working for a competitor within a single country. If you have clients across the globe, a worldwide restriction could be an option too.

In the case that the restrictions are too unreasonable, the employee could bring a claim against you which could result in your clause becoming void. You should also make sure the employee has consent for the clause to come into force and be transparent about their employment contract. Failing to do so could result in a claim of unfair dismissal and, in worst cases, an employment tribunal.

Enforcing employment restrictive covenants

In order to enforce your clause, you must ensure:

• The covenant doesn’t deny the employee the right to make a living in their chosen industry or profession.
• A clause isn’t as restrictive on the employee as is reasonably necessary.
• There’s a legitimate business interest that requires protection.
• It doesn’t prevent contact with relevant business contacts.

If you fail to meet these requirements, the covenant is unlikely to stand up in court.

Remember, an employee can negotiate the terms of the clause with you, and you should always reasonably consider them.

Breach of an employment restrictive covenant

In the event a former employee breaches the covenant, your first step should be to ask the individual to stop working with your competitor (or cease whichever action it is that breaches the clause).

It may just be an honest mistake, and the employee may not be aware of the breach, so remain open to communication just in case. However, if the employee refuses or ignores your request, you can then seek an injunction.

This means that the employee must destroy any confidential information they have. You may also seek a financial remedy for damages or breach of contract, if you can clearly prove evidence of loss.

You may also take legal action against the competitor if they are encouraging the employee to breach restrictive content.  Before you pursue legal action however, you should be sure you are within your rights to do so. So, when is poaching staff illegal? How can you prevent your staff from moving to work for a competitor in the first place?

How do you prevent an ex-employee from poaching your staff? 

It’s crucial to remember that it is not illegal to poach staff in the UK, and there is no law currently written that states this.

Legal issues will only arise if the employee has breached their employment contract. Therefore, it’s important that a restrictive covenant is a clause in their official contract. This could apply to the ex-employee who is attempting to poach your employees, or the poached employee themselves.

Remember, you cannot impose a covenant indefinitely. Most clauses apply for around six months and always within a geographical range. In short, you can’t stop an ex-employee from working with a competitor forever.

While the employee is with your company, use the time you have with them to ensure they are happy in their role and within your business. Regularly hold meetings with them to discuss any concerns they may have and whether you can make any changes to accommodate them to improve their situation. Make sure to be proactive and act on any feedback you might receive to improve your staff retention. If you don’t take these steps, you risk losing a valuable employee and the possibility of them working for a competitor after your covenant clause has expired.   

Employment restrictive covenant clause example

There are numerous types of clauses you might use, such as the one below:

“You acknowledge and agree that if you were to compete with <Company Name> immediately after termination, we would be at a serious disadvantage. Unfair competition would do damage to the business, financial or otherwise. By signing this contract, you acknowledge that these restrictions are fair and reasonable for the protection of <Company Name>’s legitimate business interests.

For a period of <X Months> after your termination date, you won’t engage in business with or be in any way interested in any person, firm, company or organisation that conducts <Restricted Business> within the <Restricted Area>, either personally or by an agent, whether on your own or in association with another person/organisation.”

Croner expert support

If you need more information regarding restrictive covenants in employment, contact our experts on 0808 501 6651. We’re well experienced when it comes to everything to do with HR, employment law and health and safety, so we’re here to answer your call at any time of the day or night.