Restrictive covenants in employment contracts

A restrictive covenant is a clause in an employment contract that limits what an employee can do after leaving such as competing, soliciting clients or poaching staff.

They aim to prevent an employee from joining a competitor for a limited period, from soliciting or working with customers or from soliciting or employing your staff.

In practice, the terms are often used interchangeably but there’s a subtle distinction.

A restrictive covenant is any clause in an employment contract that limits an employee’s actions, typically to protect the business. Some of these apply during employment while others apply after the employment ends.

A post-termination restriction is a type of restrictive covenant that only comes into effect after the employee leaves. These include clauses like non-compete, non-solicitation or non-poaching of staff or clients.

A restrictive covenant is a clause in a contract that protects your business if a member of staff leaves. Without proper restrictive covenants in place, particularly for executive roles, your business is at risk.

When an employee leaves your business, they may be tempted to compete unfairly with you. They may take confidential information, poach clients and colleagues, all with the view to setting up on their own or assisting your competitors. Such action may do untold damage to your business, particularly if they were a senior member of your team.

The ease with which commercially sensitive or confidential information can be unlawfully obtained and circulated by employees is also a growing challenge for many businesses. Homeworking has made it easier for an employee to obtain and store information under the radar and has created new challenges for employers.

Only if they are reasonable in scope, duration and geography, and go no further than necessary to protect a legitimate business interest. Poorly drafted clauses are unlikely to hold up in court.

Yes, restrictive covenants can still be valid after redundancy. Even if a role is no longer needed, the employer may still need to protect confidential information, client relationships or business interests. As long as the covenant is well-drafted and reasonable in scope, duration and geography, it can still be enforceable.

From the employee’s side, there’s often a misunderstanding that redundancy cancels any restrictions – it doesn’t. If the covenant is enforceable, you can still be bound by it and attempting to compete or contact clients could lead to legal consequences.

If you breach a restrictive covenant or any post-termination restriction – for example, by joining a competitor or soliciting clients – your former employer can take legal steps to protect the business. This may involve sending a ‘cease and desist’ letter, applying for a court injunction or even seeking damages. Courts are willing to grant injunctions where justified, particularly to protect confidential information or client relationships.

Act quickly and seek legal advice. You may be able to obtain an injunction, stop further damage and pursue a claim for losses.

Yes, you can challenge a restrictive covenant in your employment contract, especially if it’s too broad, unfair or not relevant to your role. Courts won’t enforce restrictions that are excessive or unclear.