Restrictive covenants in employment contracts - are you protecting your business?

The success of any business is often down to relationships. Relationships forged over time between senior employees and customers, clients and suppliers. In the words of Michael Dell, founder of Dell, “Our business is about technology, yes. But it is also about operations and customer relationships.”

But what would happen if a senior employee were to leave taking key clients of the business, valuable customer lists or suppliers with them? Or poach some of your other employees to take with them to a competitor or to set up on their own in competition? Do you have any effective means under their current contracts of employment to seek to prevent them from harming the business?

What are restrictive covenants?

Restrictive covenants are clauses, usually contained in senior employees' contracts of employment. Typically, they protect the business for a specific length of time after the employee has left employment from competing against the business, soliciting or dealing with clients, customers or suppliers and poaching staff.

However, to be legally enforceable it is crucial that these covenants are drafted tightly in terms of time and geographical scope and no wider than necessary to protect the Company’s legitimate business interests. This is because they amount to a “restraint of trade”, namely seeking to restrict competition and trying to limit an individual’s ability to work. Therefore, courts tend to take a very stringent approach to their enforcement.

Protected or not? Ask yourself these questions…

  • Do your senior employees’ contracts of employment contain restrictive covenants?
  • If they do, when were these last reviewed?
  • Do they relate to the work the employee is doing in their current role?
  • Have the covenants been drafted on a bespoke basis, tailored to the business and role of the specific employee or are they generic clauses which have simply been slotted into the individual’s contract?
Employment contract terms and conditions


Why should you add restrictive covenants to employees’ contracts?

With well drafted restrictive covenants the business will have the option to decide whether to take any legal action against the individual, whether for injunctive relief or damages. Court proceedings can prove costly, but many will not get as far as the High Court. Instead well drafted restrictive covenants are likely to have a powerful deterrent-effect on employees who may be considering taking clients or poaching staff. If they do leave and try to compete, where the covenants are up to date and well drafted a warning letter to the employee that they are in breach of their contractual obligations will often prove effective.

At Jordans Corporate Law we can assist with all aspects of restrictive covenants, including the review of existing covenants, drafting bespoke restrictive covenants to protect your business and advice on methods of enforcement.

Please contact Victoria McMeel, Head of Employment, for further information about how she can help your business.

0117 918 1406

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