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Protecting your Business: Why have Restrictive Covenants?

Posted by Davenport Solicitors Team on
November 30th, 2018 in Employment Law

What are restrictive covenants?

Restrictive covenants are terms of the employment contract through which an employee agrees not act in a specified manner once they have left employment.

Why it is important to have them?

During employment, terms are implied into an employee’s employment contract which provide protection to employer’s by ensuring the employee is acting in the business best interest. However, this ends when the employee’s employment ends. Restricting the use of important and invaluable informationto your business post-employment provides vital protection. In the absence of any express post-termination restriction the employee will be free to:

  • Compete with your business
  • Use your confidential information (not amounting to trade secrets)
  • Solicit business from you
  • Solicit your staff to leave you and join their competing business

What are the types of restrictive covenants?

There are four types of restrictive covenants:

  • non-competition covenants – restrictions on the former employee working in similar employment for a competitor;
  • non-solicitation covenants – which prevent poaching of clients/customers/suppliers of the former employer;
  • non-dealing covenants – which prevent a former employee from dealing with former clients/customers/suppliers, regardless of which party approached the other;
  • non-poaching covenants – which prevent an employee poaching former colleagues.

Are restrictive covenants enforceable?

The presumption made is that any post-employment restriction is void as it is a restraint of trade and contrary to public policy. However, the ex-employer may be entitled to protection if they can convince the court the restrictive covenant is:

  • Designed to protect his legitimate business interests; and
  • That it extends no further than is reasonably necessary to protect those interests.

When assessing a restrictive covenant, the court shall have in mind the following factors:

  • The geographical area and the length of time it shall run for. It is unlikely that a restrictive covenant with a wide geographical area or one lasting for a period of more than 6-12 months will be justifiable.
  • The variety of activities seeking to be restricted.
  • The interest seeking to be protected. A restrictive covenant must be to protect a legitimate business interest, such as client connections, and not purely to stop competition.

An employer may be required to provide evidence to support a connection between the ex-employer and the information they are seeking to protect.

A one-size-fits-all policy is not appropriate when drafting restrictive covenant as its contents will largely depend of the role of the ex-employee and their seniority in the business. To take such an approach would increase the risk of the clause being unenforceable. Further, they should be subject to a period of review to ensure their enforceability as the reasonableness of the covenant is judged at the time it was entered into.

If you require advice on restrictive covenants to ensure your business is fully protected, please contact us on contact@davenportsolicitors.com or 020 7903 6889.

 

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