Restrictive Covenants in Employment Contracts
When taking steps to include (and subsequently enforce) any restrictive covenants to an employment contract there are certain factors you need to consider, most particularly in case those restrictions could represent a restraint of trade.
A contractual term that restricts activities after employment has been terminated will be classed as void for being a restraint of trade, unless an employer is able to demonstrate that the restriction is reasonable and protects a legitimate business interest. Although rulings on restrictive covenants are inherently difficult to predict with any certainty, there are a number of factors to consider when assessing whether a restriction is enforceable:
- They can’t be added solely to prevent competition.
- They must relate to a legitimate business interest and protect a legitimate proprietary interest, e.g. confidential information, protecting a workforce or safeguarding connections with suppliers or customers.
- Restrictive covenants in employment contracts are usually viewed more strictly than they would in a freely negotiated commercial agreements given they often arise from an unequal bargaining position.
- They must be reasonable in respect of a range of commercial factors including duration, geography and whether the restriction is industry specific or covers numerous industries.
- Is the restrictive covenant up to date and does it reflect the employee’s role and seniority at the time that the restrictions were entered into? Similarly, if an employee receives several promotions without their employment contract being updated, are the restrictions still able to protect legitimate business interests?
Although it is obviously beneficial to ensure restrictive covenants are enforceable and are updated regularly, disputes often arise when a key employee departs a business. We are experienced in dealing with disputes arising from restrictive covenants on behalf of employers and employees.