Restrictive Covenants
Confidential information, IP, business know how, pricing, suppliers, client or customer and their data are key to the survival and success of most businesses. Protecting those vital business assets, which many employees will have some degree of access to and knowledge of, is essential for most businesses.
A common way to protect your business, including the risk that employees who have close contact with your customers or suppliers will seek to divert business away from you after they leave is to include employment restrictive covenants in your employment contracts.
Enforceability is not guaranteed
With most forms of contract, what the parties agree is what they would expect, in any dispute, the courts to uphold. This makes sense where the contracting parties are both businesses and considered to have an ability to negotiate with some degree of bargaining position.
The employer-employee contractual relationship is considered differently by the courts based on there being an inherent inequality of bargaining position. The second issue which arises with employment law is a public policy one, whereby the starting point is imposing a restraint of trade should not be lawful and needs to be justified.
In simple terms, a covenant will usually be considered enforceable if it is reasonable and proportionate. This will typically mean in terms of clauses restricting an employee for working for a competitor that the clause is reasonable in terms of duration and geographical restriction.
Consequently, good legal advice is important in ensuring that any post employment restrictions are drafted in a careful way likely to be considered enforceable by a court.
Factors to consider with employee restrictive covenants
Each situation is different. To an extent, a court or tribunal will look at the seniority of the employee or his or her ability to cause damage the employer when looking at whether a restriction on approaching customers, working for a competitor or setting up your own competing business.
As a starting point, and only a starting point :
· Restrictions lasting 3 to 6 months will often have a decent chance of being enforceable by an employer;
· 6 to 12 months is more difficult to justify for employers as enforceable;
· 12 to 24 months will typically be very risky for employers and should generally only be considered with very senior employees.
Geographical restrictions
Whether a restrictive covenant which is based on geography will be enforceable will include consideration of factors such as the type of business, the risk to the business if a breach occurs, whether the length of time the restriction is drafted to apply for and any other relevant considerations.
Garden leave
A common way for employers to seek to avoid the legal and practical risks of enforcing post employment restrictions is to retain the employee as an employee for a lengthy notice period where the employee is required to stay at home and effectively stop working for the employee and/or to only work in a way which restricts access to customers, contacts and information.
Unless the contract includes garden leave it is not an automatic option.
Garden leave clauses can be effective but they do not always work. It is not uncommon, where an employee has very strong relationships with key customers and/or is otherwise very valuable to a competitor, for that competitor to induce the employee to breach garden leave and offer an indemnity to the employee against any consequences for breaching the garden leave or post termination restrictions. In other words, putting an employee on garden leave does not mean, as an employer, you can relax. Vigilance is key.
Injunction to enforce a restrictive covenant?
Where there is breach of a restrictive covenant, damage can be caused to a business very quickly. This is especially the case where customers are approached. Valuable business can be lost at worst and at best, customers may be confused or lose confidence in your business.
In that situation, you may need to act quickly to protect your interests and that may mean applying for an injunction to prevent the ex-employee from contacting customers or suppliers. Sometimes, an injunction may be considered where a key employee is about to start working for a competitor in breach of employment restrictions.
Injunctions are always expensive and high risk. Before applying for an injunction, careful consideration and experienced advice is always recommended. We have the experience to help, please do contact us.
Solicitors for restrictive covenants
Our employment lawyers are highly experienced in advising on all aspects of restrictive covenants, protecting confidential information and data, drafting and advising on employment contracts and in advising employers and employees on disputes involving alleged breaches of post-employment restrictions. Please do get in contact to discuss your situation and how we can assist.
