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.
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