Many thanks for your patience. It is a rather common occurrence for employment contracts to contain post-termination restrictive covenants. An employer would understandably want to protect their business from a departing employee's knowledge of confidential information, business connections, influence over clients, suppliers, staff, etc. However, a covenant that restricts an employee's post-termination activities will be automatically unenforceable by being in restraint of trade, unless the employer can show that it was there to protect a legitimate business interest and did so in a reasonable way.
The first thing to consider is what legitimate business interests (LBIs) can the employer try and protect? The most common ones are:
· Goodwill (trade connections with customers and suppliers)
· Trade secrets and confidential information
· Stability of the workforce (preventing poaching of employees)
If they are trying to protect an LBI, any relevant restriction must be drafted no wider than is reasonably necessary to protect that interest. Generally, the courts would try and balance the interests of the employer's business and the employee’s right to freedom of movement and to earn a living.
When considering the most common types of restrictive covenant, these include:
1. Non-solicitation covenants – used to prevent an employee from enticing away their ex-employer’s customers. Solicitation generally means “directly or indirectly requesting, persuading or encouraging clients of the former employer to transfer their business ". There has to be a positive act by the employee such as to "tempt, lure or persuade” the client to do business with them. Situations where the client makes contact first are not automatically excluded and can still be caught under non-solicitation restrictions, although it would depend on the individual circumstances. Also it can be acceptable for departing employees to advise clients they are leaving and even leave contact details with them as that would not automatically amount to solicitation. Ideally, the covenant should be restricted to specific customers with whom the employee had contact during a specified period before leaving. Other relevant factors may include the employee's level of seniority in the business and the extent of their role in securing new business.
2. Non-dealing covenants - wider restrictions, which not only restrict solicitation of clients but any dealings with them, such as provision of services. The enforceability of such covenant will depend on the interest being protected and can be influenced by a substantial personal connection the employee enjoys with a specific client. However, such a covenant will not be enforceable if it prevents any sort of contact with the client. The restriction must be focused on the specific type of contact that would directly affect the employer's business.
3. Non-competition covenants - prevent an employee from working with a competing business or setting up to work in competition with their ex-employer. A covenant simply wishing to prevent competition will not be enforceable. However, a non-competition covenant trying to protect an LBI can be. Such covenants will generally only be reasonable if in the process of working in competition, the employee uses trade secrets or sensitive confidential information belonging to their ex-employer, or their influence over clients is so great that such a restriction is necessary. If these covenants include a geographical area, their enforceability will also depend on the area they are trying to cover, such as density and population and what is considered reasonable in the circumstances.
Whilst restrictive covenants are often used as a scare tactic by employers, if an employee has allegedly acted in breach of a covenant and the employer wants to take the matter further they can do so. The following legal remedies are available to employers:
· Injunction – this order of the court would seek to stop the employee from doing certain things that would make them in breach of the restrictive covenant, such as not to contact certain clients, not to use certain confidential information or not to work for a specific competitor
· Damages - compensation for loses which have directly resulted from the breach of the covenants, although it would only be possible if such losses are identifiable
In summary, there are various factors which deal with the reasonableness and enforceability of restrictive covenants. Whether a specific restriction is enforceable will always depend on the individual circumstances, the interest being protected and whether it has been reasonably drafted. In the end, only a court can decide if a covenant is legally enforceable so unless the employer goes to court and succeeds, they will only be able to rely on the employee’s own compliance with the restrictions. That is when the affected employee has to decide whether to do so or risk the employer taking this further.
Does this answer your query?