Restrictive Covenants

What are the different types of restrictive covenants?

The types of restrictive covenants which you may typically find in your contract of employment are:

• Non- Competition  – This seeks to prevent you from working for a competitor in a similar role to the one you previously held, and also prevents you from setting up a competing business.
• Non-Solicitation  – This imposes a duty not to approach your ex-employers customers or prospective customers. Usually, this is with specific reference to those customers you had direct dealing with for the 12 month period prior to your termination date.
• Non-Dealing – This is more onerous than a non-solicitation clause in that it prevents you from dealing with your ex-employers customers whether you encourage them or not. So if they approach you, the restriction would bite in the same way as it would by you soliciting them.
• Non-Poaching  – This aims to prevent you from taking key employees with you to your new employment or business.

What is an acceptable time period for restrictive covenants?

A court will usually not enforce a restrictive covenant of more than 12 months’ duration from the date of termination of employment. A more usual period is for 3- 6 months, provided  that the restrictive covenant was reasonable and necessary to protect a legitimate business interest.

Are restrictive covenants enforceable?

The starting point for construing all post termination restrictions and covenants is that they are void on the grounds of public policy. But that is only the starting point.

The courts are generally prepared to enforce restrictive covenants as long as:-

• they do not go further than necessary to protect your employer’s legitimate business interests (such as trade secrets and its customer base);
• they are not considered to be unreasonable in protecting an employer’s interest.

The question of unreasonableness often arises where the restricted time period is too long, or the ability to work for a competitor is too geographically wide. A further example is where your employer imposes a blanket ban on you working for a direct competitor without any reference to the type of work that you will be doing for that employer. This is unlikely to be enforced by the courts because of the serious impact it will have to enable you to make a living.

It is for your employer to prove that the restrictive covenants are reasonable. What is reasonable will depend on the nature of your employers business and what they are looking to protect. A sales business, for example, that relies heavily on customer databases, pricing structures and contacts is more likely to have a business interest to protect from competitors in the same field than in a different industry sector. In these circumstances, the covenants could be held to be reasonable as long as they are for a duration that is no longer than necessary.

For more information, please click here to access a blog on restrictive covenants by employment lawyer, Philip Landau