Understanding restrictive covenants

Employers often include restrictive covenants in employment contracts with the aim of restricting an employee’s freedom to work for a competitor in the future.

Common examples of restrictive covenants are employment contracts including nonsolicitation clauses to limit ex-employees’ ability to approach the employer’s customers.

These clauses usually include customers with whom the ex-employee has had contact during the course of their employment and will usually cover a specific period before the termination of the employee’s contract.

Another common restrictive covenant is a noncompete clause to constrain the ex-employee from working for a competitor. Usually this type of covenant will be limited in geographical scope and apply to competitors operating within a certain radius of the employer.

To be enforceable, a restrictive covenant has to be reasonable. The employer must also have a legitimate business interest that requires protection.

These types of cases are very ‘fact-sensitive’.  You must consider the particular circumstances of the case, including the industry in which the employee and employer operate.

If the employee has held a position of responsibility and has had access to important information as part of their role, their employer will also want restrict their future use of that information.

To be enforceable, a restrictive covenant has to be reasonable.

Understandably, employers will want to protect details of their customers, suppliers and business contacts. They will also want to safeguard other confidential information and ‘trade secrets’.

Price lists and client databases are examples of confidential information an employer may want to protect. Trade secrets include confidential processes specific to the employer’s business, such as designs and methodologies.

However, not all information to which an employee has access can be properly described as ‘confidential’, especially if that information can be found in the public domain.

In order to enforce restrictive covenants, proceedings are brought in the civil courts, rather than the employment tribunal. If the employer is seeking an injunction, then proceedings will be commenced in the High Court.

  • To read this feature in full and access further Lancashire business news, advice and analysis subscribe to Lancashire Business View magazine or join the LBV Hub from just £2.50 per month. Click here to subscribe now.