The truth about restrictive covenants!

Finally I have had my standard letter through to prove my capabilities within the recruitment industry.  Just thanking my previous bosses for highlighting that the clients I have developed are of value to them, and how concerned that they may now be.  I wanted to highlight some myths and put to bed the actual legalities of covenants.

When and whether or not restrictive covenants are enforceable in an employment contract is an issue that continues to be legally contentious. While it is understandably of deep concern to employers when senior members of staff decide to set up in direct competition after leaving the company, care must be taken to consider industry norms and draft a clause that extends only for as long as is absolutely necessary

Employers often choose to include restrictions within employment contracts. Workers who sign up to the restrictive covenants are agreeing not to do certain things once their employment is over.

These restrictions work to protect employers by preventing their previous employees from using the knowledge and information gained at the workplace for the benefit of their new jobs.

“Restrictive covenants can sometimes not be imposed. Therefore, we would recommend that you check that the restrictions included in your contracts are legally compliant and enforceable, so that your business interests can remain fully protected.”

Are restrictive covenants enforceable?

In general, if you rely on a one size fits all policy when drafting restrictive covenants, it risks them being unenforceable.

Certain restrictive covenants will be enforceable, if you are able to prove that they are:

• reasonable
• necessary to protect legitimate business interests; and
• of a duration no longer than is necessary to protect those interests

However, they cannot be used as a restraint of trade. If you try to deny an employee the right to make a living in their chosen industry or profession, this will be taken seriously by the court. For example, an employment contract that imposes a blanket ban on a person working for a direct competitor, even for a short period of time, is unlikely to be enforced.

What is a reasonable duration?

It is rare that the court will enforce a restrictive covenant that lasts for over 12 months, unless there are exceptional circumstances.

Typically, the court would only impose restrictions of no more than 6 months, provided of course that they are reasonable and necessary to protect a legitimate business interest.

When might a breach of contract be considered?

Even if you tick all the boxes for a restrictive covenant to be imposable, there are situations that can still render it void.

If you terminate a contract of employment in a wrongful manner, then this is technically in breach of contract. This means that any restrictive covenants contained within it are automatically void, even if they would otherwise be enforceable.

One common breach is making a payment in lieu of notice (i.e. paying notice period without a person working it) in the absence of an express contractual right to do so. In these circumstances, it is unlikely that any contractual restrictions could be enforced.

The consequences of breaching a valid restrictive covenant can be harsh and expensive. Enforcement of restrictive covenants can be robust. Courts often agree to impose far reaching and costly injunctions, rather than simply awarding damages. However, many restrictive covenants in employment contracts are not enforceable.

There are a number of provisions in UK contract law that are designed to ensure that the rights of the employees are maintained despite these restrictions. Even if an employee were to agree to the terms and conditions of a restrictive covenant that has been included in their employment contract, the agreement must go no further than necessary when protecting the interests of the business. If, for example, the terms of the restrictive covenant were to prevent the employee from making a living, the agreement would become unenforceable. The problem usually arises when attempting to define what is necessary when protecting the interests of the business when measured against the rights and interests of the employee.

In order to minimise the risk of any potential conflicts between employers and employees regarding restrictive covenants, it is important that the employee fully understands the terms and conditions of their employment contract. In order to facilitate this, prospective employees should always seek professional legal advice from a trained solicitor who specialises in contract law.

The simple thing for all successful recruiters to do is work to the restrictive covenants for a 6 month period and use this to develop new business opportunities.  The best clients that want the best service will be back within time!!!!