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A restrictive covenant is a clause inserted into an employment contract which prohibits an employee from competing with his ex-employer for a certain period of time after the employee has left the business, or prevents the ex-employee from soliciting or dealing with customers of the business by using knowledge of those customers gained during his prior employment.
Restrictive covenants are often used when employing highly skilled staff or those in senior management positions. As well as being included in employment contracts they can be incorporated into shareholder's agreements, partnership agreements and settlement agreements.
At Judge & Priestley, we can draft restrictive covenants that are narrow enough to hold up in court if challenged and wide enough to protect your business. We also advise employees who are subject to a restrictive covenant whether or not it is enforceable.
Are Restrictive Covenants Enforceable?
Restrictive covenants are, in the first instance, unenforceable, as they fall under a special prohibition called the doctrine of restraint of trade. They are seen as contrary to public policy. It is therefore up to the ex-employer to prove that:
- The restrictive covenant is designed to protect a legitimate business interest; and
- It extends no further than is necessary to protect reasonably those interests.
If an employer can show these conditions are met, then the restrictive covenant is likely to be upheld by the courts.
Factors to take into account when drafting restrictive covenants to increase its chances of being enforced include:
- The geographical area it will cover
- The length of time, the restrictive covenant will be imposed for
- The breadth of activities covered by the covenant
- The type of activity the employer is trying to restrict.
Employees may be restricted from taking up certain jobs, so they may seek that the employer: (a) waives the restrictive covenant or (b) that the Court restricts its effect. This is sometimes a consideration when looking at the terms of a settlement agreement.
An employer may seek damages, largely calculated in relation to the benefit obtained by the employee in breaking the restrictive covenant.
Whether you are an employer or an employee, we will take the time to listen to your unique situation and take action, according to your needs. By analysing both the clause and relevant case law, we can provide you with legal advice you can rely on when it comes to protecting your business or fighting a restrictive covenant.