Restrictive covenants form part of an employment contract and aim to restrict an employee from certain activities once they leave their employment.
These restrictions are put in place when employees hold company confidential information and/or have close relationships with clients, candidates, and other employees.
Restrictive covenants provide an aspect of protection of the company’s legitimate business interests. Depending on how ‘restrictive’ the covenants are will depend on how enforceable they are in court.
Let’s first look at the different types of restrictive covenants:
Non-compete- this restricts an employee from working for a direct competitor in a similar position. It also prevents the employee from setting up their own business in direct competition with the company.
Non-solicitation- this restricts an employee from contacting clients or candidates with the intention of poaching business from the company. This usually applies to clients and candidates to whom the employee has dealt with during the 12 months prior to their termination date.
Non-dealing- this restricts an employee from having direct contact with clients or candidates no matter who initiates contact first.
Non-poaching- this restricts an employee from poaching former colleagues to either work at their new place of employment or work for their new business.
Once an employee’s contract is terminated, a company may place that employee on garden leave in order to remove them from accessing “off-limit” clients or candidates. This also gives the employee the opportunity to return company property such as laptops, mobile phone, company car, etc. Depending on what the employment contract states, the time that the employee spends on garden leave can be reduced from their restrictive covenant period.
So how do you make sure your restrictive covenants are enforceable?
- Extent of the covenants- Ensure that the restrictions are a reasonable length and cover a reasonable geographical area. The ex-employee must be working in an area of business which is in direct competition with your company. If the restrictive covenants are too wide, it will be difficult to enforce them as the courts won’t want the employee to be unable to make a living.
- Legitimate business interests- You must be able to prove which business interest you are trying to protect. What risk does the employee’s breach cause your business? While we’re talking about proving things, you must also be able to prove that the employee breached their employment contract. It makes a better argument when you can back up your words with hard evidence. One thing that I have noticed pop up quite often recently is Directors of companies telling me that they found proof of a breach when they were going through the employee’s LinkedIn account which they left logged in after they left. Unfortunately, this evidence can’t be used as it is their personal account.
- Job role- The more junior an employee is, the less strict their restrictions should be. The opposite has the same effect. The more senior an employee is, the stricter their restrictions should be as they will most likely have access to more confidential information. Depending on the seniority of the role, the restrictive covenants should be put in place from anywhere between 1-12 months.
- Reviewing employment contracts- Be sure that when an employee receives their employment contract that the restrictive covenants in place are appropriate for their role. If an employee’s job role changes, you should review their restrictive covenants as they may need to be amended. The court will be looking at how reasonable the restrictions were at the beginning of the employment contract rather than at the termination date.
As long as you keep the restrictive covenants specific to the employee, don’t make them too wide and can prove that you are protecting your legitimate business interests, you will find that the courts will be much more in your favour.