Restrictive Covenants

Background

Even with well drafted restricted covenants some employers take an understandably ambivalent attitude towards them. For example: their enforceability is always fact sensitive with the result they can be unpicked to the point where they become meaningless. In addition, most employers are savvy enough to know there are significant costs associated with issuing injunctive and/or substantive legal proceedings, something which requires a great deal of management time and resources.

Why have Restrictive Covenants?

Despite any reservations restrictive covenants are always worth including in contracts of employment for some employees as, at the very least, they are likely to make an employee think carefully about their ability to join a competitor and/or poaching customers. In some cases the rpesence of restrictive covenants may be enough to make a risk adverse employee lay low until the any restrictive period has passed. The upshot is that restrictive covenants allow the employer time in which to reinforce customer relationships and recruit new personnel.

Introducing Restrictive Covenants

Restrictive covenants ideally need to be entered into at the recruitment stage as problems can arise in trying to force employees to sign up to them once their employment has started. There should also be consideration for securing restrictive covenants.

Employers also need to remember that the scope of any restrictive covenants is assessed at the time when they are entered into, and not at the time the business wants to enforce them. Therefore, they need to keep up with the employee’s career  progression within the organisation. Promotions present an ideal opportunity for employers to revise contractual terms including restrictive covenants.

Restrictive Covenants and termination

If the employment contract is well drafted then decisions need to be made about whether to invoke a garden leave clause for the duration of the notice period, or exercise a contractual PILON. Either way employers need to make sure they don’t take any action that amounts to there being a breach of contract thereby resulting in any restrictive covenants being unenforceable.

If an employee leaves to join a competitor, or to set up a competing business it is also worth investigating whether there has been any breach of confidentiality.

Employers faced with employees breaching restrictive covenants need to act decisively. Unless there is a need to go ex-parte, a starting point is a letter of claim, combined with a requirement to give contractual undertakings about future conduct. At the same time any prospective employer (where appropriate) will need to be put on notice if there is evidence of it inducing a breach of contract.

Court proceedings

If any breach persists then there will probably be little choice other than to seek a High Court injunction. Injunctive proceedings are by their nature high pressured situations both in terms of the principles at stake, and the need for intensive management time. Given the difficult legal issues involved, together with a potentially punitive costs regime, specialist help is a prerequisite.



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