We regularly act for both employers and employees in breach of restrictive covenant cases. There are a number of key issues that often crop up and we thought it might be useful to share these with you so can hopefully avoid some of the usual pitfalls.
What are restrictive covenants?
As a reminder, restrictive covenants are clauses in an employment contract which seek to restrict what an employee can do after they have left their current employer. Restrictive covenants vary, but typically they will prevent an ex-employee from working for a competitor or approaching/enticing away your clients and employees. If an employee breaches their restrictive covenants an employer is then able to enforce them through the courts. If successful, this would typically result in an order for an injunction and/or damages, plus costs.
Are restrictive covenants easy to enforce?
No, they are not. Restrictive covenants are notoriously tricky to enforce. An employer will need to show that it has a legitimate business interest to protect (client relations for example) and that, importantly, the restriction goes no further than it needs to in order to protect that interest. If it is too restrictive and goes further than it needs to, it will most likely be void for being a restraint of trade. Put simply, an employer is entitled to protect its legitimate business interests, but it is not entitled to prevent (fair) competition.
The following are common issues/themes that commonly arise when we advise on these matters:
- Has the employment contract actually been signed by the employee? If it hasn’t, then the restrictive covenants are likely to be unenforceable unless the employer can show that the employee has somehow confirmed acceptance in another way (an email for example).
- Have the restrictive covenants been taken from an “off the peg” precedent? If they have, it is likely they will be more difficult to enforce because it will be difficult to show that they have been considered in detail and specifically tailored them to the employee’s role and responsibilities etc. The key point here is that essentially (in an ideal world) each restriction should be bespoke in terms of scope, duration and territorial extent.
- Is there any evidence that the restrictive covenants have been specifically discussed, negotiated and agreed with the employee? Admittedly, this rarely happens but if an employer has this evidence, it will be in a much stronger position in terms of enforcing them.
- Has the employee’s role changed and/or developed? If so, have the restrictive covenants been reviewed, amended (and preferably agreed) by the parties? Please bear in mind that the reasonableness of a restrictive covenant is to be assessed at the point of contract. Therefore, if the restrictive covenants go further than they need to (because when the contract was signed the employee was very junior for example) and are therefore unenforceable, they will not become enforceable later (i.e. when the employee has become much more senior) unless the parties have agreed that they should now apply. The bottom line here is that restrictive covenants should be kept under constant review and amended (and preferably agreed) whenever there is a promotion or change of position/duties.
- Has the employer breached the employment contract in any way? This is an important point because a breach by the employer could result in the restrictive covenants being unenforceable.
For advice on enforcing restrictive covenants please contact our Commercial Dispute Resolution team 0345 450 5558 or email enquiries@stephens-scown.co.uk