News & Views

Making Restrictive Covenants Bite

How do you prevent a former employee from competing, soliciting and dealing with your clients, and from poaching your other employees? Restrictive covenants are the answer, but are also notoriously difficult to enforce because they are, as a starting point, considered to be a restraint of trade.

Follow the steps below to ensure that your restrictive covenants are enforceable:

  • Identify what legitimate business interest you are seeking to protect. In the recruitment industry, this might be customer connections (both with clients and candidates), stability of the workforce and also confidential information
  • Ensure that your definition of confidential information in your standard contract of employment is tailored towards your business. In the recruitment industry in particular, it is recommended that you consider specifically what types of information are regarded as confidential. This might include, for instance, CVs of candidates
  • Ensure your covenants are narrowly drafted. We recommend that you seek legal advice when drafting restrictive covenants as they are very technical clauses and it is easy to get them wrong. Covenants often fail because they go further than necessary to protect the business interest
  • Avoid a one size fits all approach. For example, you would not want to restrict the office cleaner from being able to work in the recruitment industry for 6 months as they would not pose the same threat as a senior consultant. The key point is that you consider the suitability of the restrictions in relation to each individual
  • Consider the length of the restricted periods. The approach should not be to restrict as long as possible; rather you have to ask the question how long is necessary in order to protect the legitimate business interests
  • Consider whether existing covenants are still appropriate. Restrictive covenants are actually interpreted by the Courts at the time they were entered into, not at the time of the alleged breach. What this means in practice is that, if you have a long serving employee who has undergone a number of promotions and/or changes of role, the original restrictive covenants that they entered into when they commenced employment with the business may no longer be fit for purpose
  • The potential breach of restrictive covenants can sometimes arise when the end of the employment relationship has become contentious or acrimonious. It is always important to bear in mind that an employer can lose the benefit of the restrictive covenants if it is deemed to be in breach of the employee’s contract of employment.

It is therefore crucial that, if you do suspect wrongdoing on the part of the employee, you take appropriate advice before taking any definitive action.

For further advice

Please contact employment solicitor Mark Fellows.

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