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Ben Jones
Ben Jones, UK Lawyer
Category: Law
Satisfied Customers: 61284
Experience:  Qualified Solicitor
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I have a contract with a restrictive business clause and

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Hi I have a contract with a restrictive business clause and since I'm looking for a new job I would like to know more about this
JA: Have you discussed this with a manager or HR? Or with a lawyer?
Customer: Not yet
JA: What is your employment status? Are you an employee, freelancer, consultant or contractor? Do you belong to a union?
Customer: Permanent employee
JA: Anything else you want the Lawyer to know before I connect you?
Customer: I think that's it

Hello, I’m Ben, a UK lawyer and will be dealing with your case today. Firstly, I need to ask some initial questions to determine the legal position.

What is the exact wording of the clause and how long have you worked for this employer?

Customer: replied 17 days ago.
Hi, I have been working in this company for 1 year and a half
Customer: replied 17 days ago.
This is what it says in the contract:""Restricted Business" means the business of the Company including but not limited to
design, development, implementation and support of eCommerce IT systems and
related consultancy services of similar type to those provided and sold by the Company
but limited to the activities with which you were concerned, involved or responsible
for in the course of your employment during the 12 month period immediately prior
to the Termination Date.
“Restricted Person” means any person who was employed or engaged as a consultant
by the Company in a senior executive, technical or consultancy capacity in the
Restricted Business and who was known to or worked with you in the period of 12
months prior to or at the Termination Date.
“Termination Date” means the date on which this Agreement terminates irrespective
of cause or manner.
16.2 You acknowledge that during the course of your employment with the Company you
will receive and have access to Confidential Information belonging to the Company
and you may also receive and have access to detailed Client and Prospective Client
lists and information relating to the operations and requirements of those Clients and
Prospective Clients. Accordingly you are willing to enter into the covenants set out in
sub-clause 16.3 in order to provide the Company with what you agree and consider
to be reasonable protection of that information and its trading relationships.
16.3 You shall not either personally or by an agent and either on your own account or for
or in association with any other person directly or indirectly for a period of six months
after the Termination Date:
16.3.1 in competition with the Company, in respect of Restricted Business, be
employed or engaged by any Counterparty;
16.3.2 in competition with the Company, in respect of Restricted Business, solicit
business from or canvass or entice away or endeavour to solicit business
from, or canvass or entice away any Counterparty or Prospective
Counterparty;
16.3.3 in competition with the Company, in respect of Restricted Business, have any
business dealings with, any Counterparty or Prospective Counterparty;
16.3.4 solicit or induce or endeavour to solicit or induce any person who, on the
Termination Date, was a Restricted Person to cease working for or providing"
Customer: replied 17 days ago.
I am currently a Technical Lead, and I have applied for a Consultant role which is different, but the companies are still on the same IT area

How long have you worked for the business, all in all?

Customer: replied 17 days ago.
You mean for the company I’m currently working for, or you mean in the IT business?

For the employer that has issued you with this contract

Customer: replied 17 days ago.
1year and 5 months

Thank you. I will get back to you with my answer as soon as I can, which will be at some point today. The system will notify you when this happens. Please do not reply in the meantime as this may unnecessarily delay my response. Many thanks.

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?

 

Customer: replied 16 days ago.
That makes sense. Thanks for your help! I'll move forward with the application then

All the best

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