Restrictive covenants in employment agreements
Restrictive covenants are a complex area within employment law. Companies often seek to protect their business interests by having their employees, workers or consultants sign agreements that seek to impose restrictive covenants on the individual. Those covenants, if enforceable, will restrict the business activities an employee can be involved in following their resignation.
Restrictive covenants only protect the business for a limited time period and should be expressly included in employees’ contracts or service agreements.
Covenants can prevent employees with highly valued skills from working for competitors when they decide to end their employment with a company. For employers, although you must protect your business interests, you cannot impose unreasonable restrictions on your former employees.
For the individual, it is important to note that restrictive covenants within a contract should not always be taken at face value. If a court finds that a post-termination restriction goes further than is reasonably necessary to protect a company’s legitimate interests, that restriction will be ruled an unlawful restraint of trade and thus unenforceable.
Our restrictive covenant solicitors have considerable experience fighting the employee’s corner and successfully challenging the heavy-handed tactics of large companies attempting to enforce unreasonably wide restrictive covenants.
A restrictive covenant: in contract law, a contractual promise... may be enforced if the ex-employer can convince the Court that the covenant:
- protects the legitimate interests of the business
- is reasonable and necessary to protect the interests of the business
Restrictive covenants in business sales
Restrictive covenant disputes can also arise in the context of mergers and acquisitions or agreements for the sale and purchase of business assets. It will be common for the vendor of the shares or business assets to give restrictive covenants and undertakings not to solicit customers of the business or compete with it following completion of the transaction.
Agreements for business sales can include a range of restrictive covenants, including:
- Non-solicitation of staff
- Non-solicitation of customers or suppliers
- Reputation and goodwill: a business’ intangible and reputational assets s... covenants
- Geographic locations
Restrictive covenants in business sales, mergers, and acquisitions must be reasonable and genuinely necessary for protecting the business.
In such cases, courts can more readily find that the relevant restraint of trade clauses are reasonable and enforceable, particularly where the vendor has sold the shares or business assets for a large sum.
What restrictions are imposed in UK employment contracts?
Our UK restrictive covenant solicitors regularly advise both companies and individuals on restraint of trade and confidential information issues arising out of service contracts, consultancy agreements and contracts of employment.
There are a number of restrictions that may be imposed within a covenant. Some of the restrictions most commonly imposed are:
- Prohibiting the use or disclosure of the company’s confidential information.
- Prohibiting the use by the individual of a trading name that is deceptively similar to the companies.
- Prohibiting the individual from dealing with, or soliciting business from, the company’s clients and customers (commonly known as “non-dealing clauses” and “non-solicitation clauses”).
- Prohibiting the individual from being involved in business activities that compete with those of the company (aka “non-competition clauses”).
Remedies to a breach of a restrictive covenant: in contract law, a contractual promise...
Companies seeking to protect their business interests can commence court proceedings where restrictive covenants have been breached. The parties who have benefit of the covenant, if they are successful, can expect to obtain an injunction restraining the individual from committing further breaches, as well as financial compensation, which can take the form of either:
- Damages, that is, the damages that have flowed from the breach, such as lost future earnings where a customer has been enticed away by an ex-employee; or
- An account of profits, that is, the ex-employee will be ordered to account to the company by paying over a sum equal to the profits generated as a result of breaching the restraint of trade clause.
How can South Bank Legal’s restrictive covenant: in contract law, a contractual promise... solicitors help?
The enforceability of restrictive covenants can be complex and usually requires specialist legal advice and assistance. Our commercial litigation solicitors frequently act in cases where there is a dispute regarding a restrictive covenant: in contract law, a contractual promise....
Our restrictive covenant: in contract law, a contractual promise... solicitors provide timely and cost-effective legal advice and representation to our clients. We represent clients in the UK and abroad across a range of industries.
South Bank Legal Solicitors is a commercial law firm, with a registered office based in London, company registered in England and Wales. We are authorised and regulated by the Solicitor’s Regulation Authority. The firm has several litigation solicitors who each have over 20 years of experience.
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