A Guide to Restrictive Covenants
Here at Wirehouse we get many questions regarding restrictive covenants and the desire for employers to restrict what an employee can do once their employment has been terminated. The starting point for employers is to understand that any contractual term which restricts a former employees activities would be unlawful as a restraint of trade and therefore the clause would be void and worthless.
As with most areas of Employment Law however, there are caveats to this position. It will not be void if;
- The restriction protects a legitimate business interest such as confidential client contract information, details of suppliers, the stability of the workforce etc. and crucially,
- it is reasonable in its restrictions and is specific to the interests listed above.
Too often have we seen wide, woolly and vague clauses basically stating that a former employee cannot work in the industry, anywhere in the UK, for at least 12 months, nor speak to clients, staff or suppliers within that industry also. This is a prime example of an unlawful clause which would not be enforceable and is not worth the paper it is written on. A business should really spend time considering what they actually want to stop happening in the future. The more draconian and restrictive the clause, the more you need to be able to justify it.
Aspects to Consider when Putting Restrictive Covenants in Place
- The duration of the restriction. As a rule of thumb, anything over 6 months is often likely to be too onerous and therefore unenforceable. If an employee has a strong relationship with a client, can someone else create a relationship with that client for the business within 3 – 6 months in order to protect the business?
- The area of the restriction. This wholly depends on the business. It is possible to have a global restriction in some industries, however, in others such as hairdressing, the restriction may only be valid if they work within a few streets of your location. Even a 1 mile radius could be unreasonable if that means they cannot work in the same city, without good reason.
- The work which is restricted. What aspect of their work that you want them to not be able to do is an issue which needs to be considered. A business needs to consider what the actual competing roles are that they want to restrict, and include these specifics in the clause. To ban an employee working for another business in ‘any capacity’ will almost always be unenforceable as too wide and vague.
- Competitors which you wish to be included. To take the hairdressing example, state the specific local competitors that you do not wish a former employee to work at for a period of time. Not all hairdressers in the area, just direct competitors. If the clause names those specific 3 or 4 firms, then it is more likely to be an enforceable term or clause than if you state any hairdressers within the town.
Consideration must be given as to whether or not the clause is really necessary, or whether there is an element of paranoia or ‘safety first’ in creating the clauses. Too often these clauses are so wide, vague and all-encompassing that they could not hope to be enforceable because not enough thought has been given to them and they lack specific detail to justify each clause.
In any event, quite often companies want more of a ‘bark’ of warning and deterrent rather than for the clause to have any real bite which is enforceable. The truth of the matter is that in order to enforce any clause, a business needs to be prepared to issue court proceedings against an individual in the County / High Court, which can be very costly, time-consuming and complex. Quite often, the cost of enforcing a restrictive covenant can be a restriction itself.
Speak to our trusted legal team today for HR advice about the issues surrounding restrictive covenants.
Request a callback today »