Restrictive Covenant Agreements
If your business relies on strong customer relationships or your staff handle commercially-sensitive information, a restrictive covenant can help you protect yourself against the negative effects of a key employee leaving your business.
Our experienced team of legal specialists advises clients in different languages on a wide range of legal matters, including Employment Law. Call them today on 0208 1111 911 to discuss your requirements.
What exactly is a Restrictive Covenant?
A restrictive covenant can take the form of a clause within an employee’s contract or may be a separate document issued only to specific employees. Either way, it is issued to help prevent the loss of key customers or information in the event of that employee leaving the business.
They are typically used in sales roles, senior client-facing roles, or where an employee has access to data or sensitive information. In some instances though, a certain level of restriction might apply to all employees of a business.
What is included in a Restrictive Covenant?
Below are examples of some of the more common clauses included in restrictive covenants:
- Non-compete – This would prevent your former employee from working for a direct competitor for a reasonable period of time after their employment ends. The timescale needs to be realistic, because excessive clauses are seen as a restraint of trade and can be difficult to enforce.
- Non-solicitation – This helps you protect your relationships with specific clients or customers. It would typically specify the clients that the employee cannot approach in their new role. This clause will usually be limited to clients they had a reasonable amount of contact with, and contain a reasonable time limit.
- Confidential information – This can prevent the employee from taking and using key information in their new role, such as client or customer data, business plans or proprietary information.
- Non-poaching – This clause makes it more difficult for the employee to take colleagues with them immediately to their new role. This too needs to have a reasonable, realistic time limit for the clause to be enforceable in practice.
Depending on an individual employee’s role, their level of knowledge and the types of clients they worked with, their covenant may include a combination of the above clauses.
How long can I restrict the activities of a former employee?
After leaving your business, your ex-employee still has a right to earn a living. Given the expertise they have already gained in your industry, it is also reasonable for them to continue their career with another company in your sector. Restricting their activities in your industry for more than a few months would more than likely amount to a restraint of trade.
Time limits are typically expressed in months – maybe three or six months – depending on the employee and the industry. For very senior roles such as directors – especially if they have access to confidential information and are key to the delivery of a particular service – it is possible to enforce a 12-month time limit
Do Restrictive Covenants really work?
There is a very common belief that restrictive covenants are ‘not worth the paper they’re written on’, but in reality they are regularly enforced by courts. Taking this into account – as well as the potential implications of a breach – they definitely should be taken seriously by all parties.
They won’t prevent your former employees from working for a competitor forever. What they can do though is buy you time to recruit a replacement, consolidate your relationships with existing clients and limit further staff departures to the same competitor.
If staff have a restrictive covenant, do I still need to put them on gardening leave?
‘Gardening leave’ refers to the employee sitting out their contractual notice at home on full pay. For example, if an employee resigns, giving three months’ notice, you will need to pay them for those three months, regardless of whether or not they come to work.
By asking them to stay at home, they won’t be in contact with your clients and won’t have access to confidential data or information. Whether or not you make them work their notice is a judgement call for your business to make.
By putting staff on gardening leave, you can recruit a replacement during their notice period. The time limit of their covenant then allows time for their replacement to build relationships with clients and get up to speed with their role, before your ex-employee can solicit them.
So in many instances, a restrictive covenant and gardening leave can be used together to help smooth out the impact on your business when a key employee leaves.
What other legal services might I need?
We can advise on a wide range of other Employment Law matters, and wider Business Law services such as Dispute Resolution, Commercial Property and more.
How do I get advice on restrictive covenants for my business?
Call us on 0208 1111 911 or contact us through the website and we’ll discuss your circumstances with you. Then we’ll recommend the best course of action to create restrictive covenant agreements that will be effective for your business. The initial call is free and we’ll advise you of our fees before you decide to instruct us.