As an employer, you may want to protect your business by restricting an employee’s activities after their employment has ended.
Often employers try to do this by inserting ‘restrictive covenants’ into the employment contract.
When is a restrictive covenant enforceable?
A restrictive covenant will only be enforceable if it protects your business interests. Otherwise it will be regarded as an unlawful restraint of trade. The only recognised business interests are:
- trade connections (such as your customers and your workforce); and
- trade secrets and confidential information.
A restrictive covenant will be enforceable, as long as it is no wider than is necessary to protect that interest.
The covenant must only apply for a limited time and within a limited geographical area.
Stopping an ex-employee from poaching your customers
You can include a covenant in an employee’s contract preventing them from poaching your customers after they have left your business. This type of covenant is particularly useful if your employee has a strong relationship with customers.
Generally, the covenant should be restricted to customers that your employee had contact with.
The length of time that the covenant should apply for would depend on the amount of time it would take for your employee’s successor to gain influence over the business contacts.
Protecting your workforce
A restrictive covenant preventing a former employee from poaching your existing employees is likely to be enforceable, as the stability of your workforce is a legitimate business interest.
However, the covenant should usually be limited to those employees at the same level as the former employee and those more senior to them.
Stopping the employee from working for a competitor
There are some circumstances in which it would be fair to include a non-competition restriction. For example, where an employee’s influence over customers is so great that the only effective protection is to ensure they are not engaged in a competing business at all.
Careful drafting is key
Restrictive covenants must be drafted carefully so that they:
- Accurately reflect each employee’s role.
- Reflect the circumstances of your business.
- Go no further than necessary.
It’s important that restrictive covenants are drafted correctly from the start – otherwise you may find a court strikes them out completely and you’re left with no protection at all.
Further information
For more information about restrictive covenants and how they can help to protect your business, contact Andrew Crisp on 01604 601 575.