Restrictive covenants and confidential information

What are Restrictive Covenants?

In order to protect business interests, many employment contracts now contain restrictive covenants, also referred to as post-termination restrictions. The objective of such restrictions is to protect confidential information and key relationships, by limiting the activities existing and former employees, directors or shareholders can undertake during and once they leave your employment.

The drafting of restrictions in employment contracts is key to whether or not they can be enforced, once the individual leaves employment. Post-termination restrictions are analysed in detail by the courts and should enforcement against a former employee be initiated by a business or organisation, the courts are very careful to ensure that such restrictions do amount to a restraint of trade. A careful and measured approach is essential in ensuring the reliability and therefore, the value of any such provisions

Restrictive covenants are a useful tool to utilise but it is one that an employer needs to impose reasonably in order to protect their legitimate business interests. Reasonableness can include the seniority of the individual for whom you wish to restrict, the duration of their employment and/or any restricted period or territory and also the relationships with clients and/or suppliers that a business or organisation is attempting to protect.

In addition to the protection that can be achieved in respect of confidential information, there are generally four main areas covered by restrictive covenants:

1. Non-competition: preventing the employee from working in a similar role for a competitor
2. Non-dealing: preventing the employee from acting for former clients, regardless of who approached whom
3. Non-solicitation – preventing the poaching of clients of the employer
4. Non-poaching – preventing the poaching of former colleagues

As a rule, restrictions should be carefully considered for each employee and not simply implemented as a blanket clause, covering a particular group of employees. The more idiosyncratic they are, the more reliable they will be.

The greater the breadth and depth of the conduct captured by restriction, the greater the risk of the courts finding that any restrictive covenant is “unreasonable” and therefore unenforceable. Careful thought is therefore required as to what conduct it is that a business or organisation is seeking to limit.

Breaches of Restrictive Covenants

If you have cause for concern that a former employee has breached their restrictive covenant, a business or organisation has a number of options available to it. Whilst the threat of legal action is often sufficient to change the behaviour of the employee, or former employee in question, litigation in the form of an application for injunctive relief and/or satellite litigation in respect of losses caused may be required.

The BPE Employment Team have enormous experience not only in the drafting of effective provisions of this type; but also in the enforcement (and the resisting the enforcement) of these.