Restrictive Covenants

Even with well drafted restricted covenants in employment contracts some employers are still ambivalent about them. Enforceability is always fact sensitive with the result there is often scope to challenge enforceability. In addition, employers know there are significant costs associated with issuing injunctive proceedings.

Purpose

• Covenants act as a deterrent against competition or poaching.
• They create breathing room to help protect commercial relationships.

Types of Covenants

• Non-compete: restricts working for a competitor.
• Non-solicitation: prevents poaching of clients.
• Non-dealing: prohibits accepting business from former clients.
• Non-poaching: restricts recruiting former colleagues.

Implementation and Variation

• Covenants should be agreed at offer staqe, and reviewed with promotions, or pay rises which will provide the necessary consideration.
• Contractual variations should be approached carefully to avoid unenforceability. Consider appropriate consideration, e.g. a payment and execute fresh obligations as a deed.

Scope and Duration

• Clauses must be tailored to role and seniority.
• Duration should be proportionate to the risk and seniority.
• Protecting associated and group companies will require express wording.

Special Considerations

• TUPE transfers may impact enforceability for transferee depending on timing and contractual continuity.
• Teams moves require swift investigation and response.
• Share scheme documentation may contain covenants governed by foreign law — enforcement can be tricky and jurisdiction-sensitive.

Termination

• Exercise caution with PILON or garden leave to preserve enforceability.
• Investigate suspected breaches swiftly and proportionately.

Litigation

• High Court claims for interim injunctions are fact-intensive, urgent and resource heavy.
• Covenant reform is currently under review, including potential remuneration requirements or outright bans.