Gardner Leader

Restrictive covenants

Most employment contracts[link], particularly for senior employees, will contain clauses which try to limit what an employee is allowed to do after they leave. Employers want to stop employees damaging their business by moving straight to a competitor.

Restrictive covenants will generally try to prohibit the employee from:-

• working for a competitor for a period of time
• setting up a competing business of his or her own
• taking customers away
• taking other employees away

For an employee, the inclusion of this kind of restriction may seriously inhibit their choice of future employment.

Employees who are being asked to sign up to such provisions should ensure that they fully understand what they mean and the extent of the restrictions which they will impose.

When the time comes to move on, it will often not be clear whether the employee’s proposed new employment or business venture would breach the restriction or not – we can help employees to understand how a court would be likely to interpret the clause and what the consequences of any breach would be. We can help determine whether the restriction is likely to be enforceable – many will not be enforced by the courts because they are too wide to be reasonable. Often we can help in drawing up an agreement between the employee and the ex-employer to specifically set out what can and cannot be done so that no-one is in any doubt.

If the employee has already set off on a new venture or taken up employment with someone else, he may find that he is faced with the threat of court action by the ex-employer for an injunction or damages. If this happens it is important that the employee gets swift, practical advice before the costs and the litigation escalate.

Approached in the right way, it is often possible to find a compromise which everyone is prepared to accept.

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