Reviews and Ratings for solicitor Elissa Thursfield, Llandudno

Thursday 13 February 2020

Restictive Covenants: What you need to know


Restrictive covenants



Similarly to starting a relationship or entering into a marriage, an employee enters into an employment contract governing their relationship with their employer, more often than not without having considered how or why that relationship may end and on what terms. It is only on breakdown of the relationship with their employer that the employee questions their rights and freedoms in respect of new and prospective employment opportunities. Many people find themselves bound by certain terms in their contract, namely restrictive covenants, which limit where or with whom they make seek future work. 



Whilst restrictive covenants are certainly a necessity to an employer, they may also present a colossal burden to an employee. 



It is not uncommon for an employee, who thought nothing of the restriction at the time of entering into the relationship, to suddenly panic when they are hit with the stark reality that their opportunities are in fact limited. This prospect often leads employees to turn to employment solicitors questioning the enforceability of such terms. We, at Gamlins Law, are often approached by frantic employees who have already secured new employment but later realise they are contractually forbidden from taking up their new role. 



Restrictive covenants can take various forms and there is no one-size-fits-all term to protect all interests an employer requires. For this reason, most employment contracts contain various terms which each, individually, constitute a restrictive covenant. 



So, let’s take a look at the most common types of covenant. 



Non-compete clauses

These are the clauses contained in an employment contract whose purpose is to restrict an employee’s ability to start up a competing business similar to that of their employer’s or to join an employer’s competitor. These covenants are often confined in their geographical reach so as to still allow the employee some freedom. 



By way of an example, an employee who leaves their employment whether at a garden centre or a Michelin star restaurant, could not, by virtue of the covenant, then start up their own garden centre or Michelin star restaurant next door. However, depending on the wording of the covenant and the radius in which it extends, that employee may be at liberty to set up that business 10 miles down the road. 



Restrictive covenants which cover an exceptional and unreadable radius may not be enforceable and this is something we will consider. 



Non-solicitation and non-dealing clauses

These clauses act to prohibit an employee from “soliciting” or put more simply, attempting to draw their ex-employer’s customers or supplies away from them. These terms essentially protect the business or empire that an ex-employer has worked hard to build from being whittled down to nothing by an ex-employee. 



Generally, for non-solicitation and non-dealing clauses to be enforceable they must be limited in scope to customers or suppliers that that employee communicated or engaged with during their employment.



Non-poaching clauses 

Finally, non-poaching clauses act similarly to non-solicitation or non-dealing clauses though they relate only to other employees of the ex-employer. Therefore, an employee who wishes to move jobs or start up their own business cannot and should not attempt to encourage or persuade their colleagues at the previous employer to also jump ship and join them on their new voyage. 



Enforceability and reasonableness

The questions that we, as employment lawyers, have to consider when determining the validity and enforceability of restrictive covenants are, on the face of it, simple. Terms constituting restrictive covenants essentially must not go any further, in time and in scope, than what is reasonably necessary to protect the employer’s legitimate interests. 



A restrictive covenant must be time-limited. They cannot be infinite and typically last for between 6 and 12 months. Generally a restrictive covenant lasting over 12 months would be difficult to justify. This time limit must be reasonable and what constitutes reasonable depends on the nature of the employer’s business and the individual circumstances surrounding the employment relationship. 



In terms of being limited in geographical scope, a local bakery including restrictive covenants in an employee’s contract preventing them from setting up their own or working within a competing bakery anywhere in the whole of England and Wales would clearly be unreasonable in its geographical reach. However, a 10 mile radius in which that employee cannot set up said bakery is more likely to be justifiable. 



It is therefore, as you would imagine, impossible to have a blanket approach to restrictive covenants. Each case must be judged on its own facts and where a question regarding the enforceability of a restrictive covenant arises it is strongly advisable to seek independent legal advice. 



If you need advice on whether or not a restrictive covenant is enforceable, call a member of our Employment Team on 01745 343 500 today.

No comments:

Post a Comment