What is a Restrictive Covenant in an Employment Contract?

If you are working for a major company in the UK, you will be viewing sensitive and important information every day that is considered private. Indeed, it can be data that is essential for the success of that business. This means that when you leave as an employee, an employer will want to protect that information at all costs. This is where a restrictive covenant comes in.

What is a Restrictive Covenant?

A restrictive covenant is a clause that can protect the use of any information that a person has learned during employment by placing restrictions on future employment. In other words, one type of restrictive covenant can forbid an employee from joining a competitor to the company. This can be for a certain amount of time after they leave their employer. This term can be implied into your contract that you receive and agree to from your employer and have control over your future. Therefore, a lot of employers choose to include a restrictive covenant so that their company can be protected.

Different Restrictive Covenants

Namely, there are four types of restrictive covenants that you should be aware of in UK employment law. They are a non-compete, non-solicitation, non-dealing and non-poaching restrictive covenant.

Non-Compete Restrictive Covenant

This is a restriction in your contract that states you cannot work for a competitor to this company in the future. In addition, you cannot open your own business if it would conflict with your previous employers. Normally, this is for a set amount of time.

Non-Solicitation Restrictive Covenant

This type of restriction has the aim of preventing you from contacting clients in order to take their business from the company in the future. This is often referred to as ‘poaching business’. There may be a time limit on this type of restrictive covenant.

Non-Dealing Restrictive Covenant

Similar to the last restrictive covenant, this one makes sure that you do not have contact with any clients you have known through the company after you leave.

Non-Poaching Restrictive Covenant

Not only can a restrictive covenant stop you taking clients, but this one can also stop you poaching other employees that you have worked alongside at the company.

Are Restrictive Covenants Legal and Can They be Enforced?

When they are written specifically for an employee, a restrictive covenant can be legally enforceable. They can be effective devices for protecting the inside running’s of a business and keep them different from their competitors. However, employers must be very careful when they create contracts that contain this type of clause. It can be difficult to get it right so that it can be legally enforceable later on.

For example, it is recommended that employers do not use a general policy when they are drafting restrictive covenants. They must be specific and reasonable, being creating for every employee that needs it.

In addition, they should only be in place if they are necessary and if you have legitimate business interests that should be protected. Most of the time, this means that restrictive covenants are used for higher roles, rather than every single employee at a company. The duration that the restrictive covenant lasts for should also be reasonable. In other words, it should not be longer than is necessary to achieve interest protection.

When Restrictive Covenants Will Be Unenforceable

One of the main reasons why some restrictive covenants are unenforceable is because they are a restraint of trade. This means that it has been constructed in a way that is prohibiting the employee from their right to have a job and earn a living in a certain profession.

If there is an objection to the restrictive covenant, the court will take an individual look at the contract to see if it is reasonable and fair. The answer to this question will depend on the type of industry you are in and the circumstances.

Remedies for Restrictive Covenants

The most popular remedy for breaching a restrictive covenant is seeking an injunction. The court will look at whether there is a serious issue existing in the case and if the restrictive covenant is specific enough for there to be a problem. Often, clauses that are constructed very widely will not successfully be awarded an injunction.

It is possible to be awarded damages for breaching a restrictive covenant. Of course, this will only be where it is appropriate. The court will have to look at whether there has been a breach and a loss in the case to award this remedy.

An employer can choose to bring a claim against a third party, as well as the former employee. This remedy is looked at as conspiring together to breach the restrictive covenant. This may be hard to prove. There would have to be evidence that the former employee and somebody else were working together.