Will your restrictive covenants stand up in court?

Will your restrictive covenants stand up in court?

Practical guidance on what you can do to ensure that your restrictive covenants will be enforceable.

Employers currently fear that when the economy picks up, employees will be on the move in order to secure better employment terms - the "grass is greener" effect. Employers need to protect their business interests as far as possible. Well drafted and industry-specific restrictive covenant clauses should be included in the service contracts of key employees to provide necessary protection. Whilst employers are on the front foot in the job market, now may be a good time for review and implementation of change.  

A restrictive covenant will only be upheld and enforced if the employer can show that:

• it has a legitimate interest which is appropriate to protect; and
• the protection sought goes no further than is reasonable (having regard to the interests of the parties and the public interest).

Generic restrictive covenants simply aimed at preventing competition once the employee leaves employment will not usually be enforceable.

It is important therefore that any restrictions are tailored to fit the employee's position within the business in mind.  If the covenants are wider than strictly necessary in terms of their length, the kind of activity which is banned or geographical area, then those restrictive covenants will likely be unenforceable.

Practical considerations for your business
Employers should, in particular, consider the types of restrictive covenants which are required, for example, confidentiality provisions, non-competition, non-solicitation (of customers and/or employees) and non-dealing clauses.

Particular care should be taken in respect of an organisation which belongs to a wider group structure to ensure that the covenants cover the relevant protectable interest.

Restrictive covenants must be reviewed regularly. This is necessary to ensure that any post-termination restrictions remain relevant to the particular employee and his/her role. On many occasions, an employee who has worked his/her way up through the business will have either no restrictions or inadequate restrictions. In addition, restrictive covenants should always be reviewed if the business starts operating in different fields or geographical locations.

Finally, there are sometimes other often more suitable ways of protecting a business from the threat posed by a departing employee, such as the inclusion of a garden leave provision in the employee's contract of employment or providing for a long notice period: both of these can help prevent the employee detrimentally affecting business interests.

Simon Rice-Birchall, Partner has considerable experience of employment litigation and has a reputation in the marketplace for his discrimination law expertise.

For information or a health-check, please contact Simon Rice-Birchall at Eversheds LLP Human Resources Team in Leeds on 0845 498 4978.