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What are restrictive covenants?
Restrictive covenants are a valuable weapon for any employer who needs to protect its business and market position following the departure of a key employee. Restrictive covenants are clauses in contracts of employment which restrict an employee's activities after their employment has ended (whether by dismissal or resignation) for a fixed period of time. They are crucial for employees, such as key sales personnel, who have had access to and who have knowledge of an employer's customer base.
Different types of restrictive covenants
There are broadly four types of restrictive covenants:
Restrictive covenants need to be carefully drafted to be enforceable and it is wise to seek professional advice. They should be specifically drafted for different categories of employees and should be kept under regular review as the circumstances of the business and the employee's role change. Restrictive covenants will only be enforceable if they are no wider than is reasonably necessary to protect an employer's legitimate proprietary interests i.e. trade secrets and trade connections, skilled workforce and valuable contacts/clients.
Any period spent on garden leave should be offset against the length of the restriction.
Restrictive covenants need to be drafted to take into account a specific employee's circumstances in the business. For example, a covenant preventing an employee from working for a competitor for a period of 6 months anywhere within the United Kingdom may be enforceable against a national sales director, but it would not be enforceable against an office junior who has had no access to client and sales information which is key to the business' competitiveness.
Once an employee's contract of employment has terminated, it is sensible to draw the restrictive covenants to the employee's attention. In the event that, subsequently, it comes to the employer's attention that the employee is in breach of the restrictive covenants, the new employer can be contacted and the restrictive covenants drawn to their attention and if appropriate legal proceedings can be issued to restrain any breaches by the ex-employee and/or the new employer and to recover any losses.