How restrictive covenants can help to protect your business - Jenny Hawrot of Willans LLP
By Jenny Hawrot
Restrictions in employment contracts serve an important purpose.
Put simply, they stop an employee from doing certain things, such as approaching suppliers or dealing with customers, for a period after they have left the company.
These clauses - known as restrictive covenants or post-termination restrictions - are particularly important to have in place for employees who have long-standing relationships with clients or strategic-level knowledge of your business and its affairs.
What kind of restrictions are there?
Different types of restrictions can be used, depending on what needs to be protected. For example, 'non-poaching' clauses prevent an employee from approaching former colleagues to join a new business and 'non-dealing' clauses prevent an employee from dealing with former clients. Therefore, post-termination restrictions can provide significant protection for your business.
However, restrictions will only be enforceable if they protect a "legitimate business interest." As such, they cannot be drafted too broadly or go further than is necessary. For example, a clause preventing an individual working in a wide geographic area, outside of where the business operates, is unlikely to be enforceable. Similarly, simply limiting competition in a whole business sector won't be classed as a legitimate business interest as it goes beyond what is justifiable.
Due to this, post-termination restrictions can be controversial and notoriously hard to enforce, unless they are well drafted. Recent cases suggest that employers should consider what is suitable for the employee in question, taking their length of service and seniority into account, rather than a one-size-fits-all approach. Therefore, it's important that they are carefully drafted for each employee.
What can I do if I suspect an employee has breached a restriction?
We often speak to clients who suspect an employee is acting in a way that breaches a restriction in their contract, either during or after their employment has ended. At this point, it's imperative to gather as much information as possible and collect evidence, be it from colleagues, electronic files or mobile phone records. This will help to determine what, if any, action can be taken.
It's also important to seek professional legal advice to ensure your next steps are well informed and commercially sensible. For example, if you're thinking of suspending the employee (if they're still employed) or taking action to reinforce customer relationships, a lawyer can reassure you that your actions are on the right track and assist with any formal communications needed.
Equally, if immediate action is needed - such as an emergency injunction or pre-action correspondence - a lawyer can ensure that this is dealt with in the most appropriate and effective way.
For more information on protecting your business, listen back to Willans LLP's free webinar on top tips for drafting and enforcing restrictive covenants. If you believe your business would benefit from a review of employment contracts, our team would love to hear from you.
Jenny Hawrot is a senior associate solicitor who advises clients on a full range of employment-related matters including contracts, general employee relations and HR.
Please call 01242 541566 for more information, or alternatively email email@example.com.
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