What are restrictive covenants?

All businesses rely on privileged information regardless of their size or trade. When a business feels the need to protect the knowledge deemed exclusive to that specific business, restrictive covenants are utilised. Restrictive covenants are frequently included in employment contracts to ensure their employees do not pass on private information, generally associated with either strategy or trade secrets, with entities outside of the business. A former employee possessing insider knowledge of a specific business could be a very attractive prospect for a job at a rival's business. In this scenario, restrictive covenants would forbid a former employee from competing with his ex-employer following his exit from the business, or from sharing with any competitors or customers within that specific industry, privileged knowledge that he obtained whilst working for the formed company. Whilst the employee remains active within the business, restrictive covenants may be used by employers.

A restrictive covenant is only enforceable if the employer is able to establish that it is necessary in order to protect their business interests and it is limited to what is required in order to protect such interests. An employer need to prove that they are reasonable restrictions and do not continue to a longer time period than what is necessary. Multiple forms of restrictive covenants exist including non-solicitation covenants, non-competition covenants, non-poaching covenants and non-dealing covenants. Such covenants fulfill a myriad of functions including prohibiting the use of  any information deemed confidential, barring the former employee from soliciting any clients or forbidding employee poaching from the business.

With regard to the restrictions I want to put in place, what should I be aware of?

There are several key factors that an employer wanting to draft a restrictive covenant should be fully aware of. The covenants are exceedingly limited in nature; the clauses must take into account appropriate time limits as well as geographic restrictions. Restrictions should apply specifically to relevant information and you must be able to justify the relevance of such protected knowledge by evidence. In addition, employers are not allowed to impose restrictions that prevent a former employee from utilising either their personal knowledge or skills within the industry. They can not be 'banned' from operating in their respective field.

Am I able to view an example of a restrictive covenant clause?

A garden leave clause is a common issue when considering a restrictive covenant. An employee is required to stay at home during their notice period in this clause; the employee's standard salary is paid, however they are prevented from stockpiling confidential information prior to his or her departure from the business or dealing with any competitors. A garden leave clause has to be explicitly mentioned in the contract of employment and it can not extend for a period of time deemed unreasonable. Furthermore, if an employee is subject to a breach of contract or unfair dismissal, restrictive covenants are not enforceable but they are enforced if an employee resign from their position.

If a restrictive convenant is breached, what can I do ?

If an employer suspects that an employee has breached a restrictive covenant, they could seek an injunction against an employee. Should the court agree that a risk is posed to protected information, an interlocutory injunction may be issued with a request  to deliver any protected information. Occasionally employers decide to seek damages for a restrictive covenant breach which can be difficult at times as an employer will need to prove a loss was made as a result of the breach and unquantifiable opportunities damages would need to be assessed. Nevertheless, courts do contemplate financial losses if an employee is in breach of a restrictive covenant.

Is it possible to draft restrictive covenants myself?

One must handle restrictive covenants with extreme precision and care; they will only be upheld if it is apparent that they only restrict what is essential to protect professional matters. Therefore when drafting such a clause, it should not be dealt with carelessly and “cookie cutter” contracts would fall short. Periodic assessment benefit many restrictive covenants to make certain that the clause terms remain necessary and enforceable. Such clauses are difficult to draft and they can prove difficult to enforce if you are looking for an interlocutory injunction. Hence, seeking professional legal advice is highly advisable when considering restrictive covenants. We provide a highly personalised and professional legal service at a significantly lower cost than that offered by traditional representation. We are proud of the personalised approach we adopt when giving legal advice and we cater information to our client’s unique needs. This form of customised care is a crucial element in preserving confidential information and trade secrets in the volatile arena of restrictive covenants. 

If you require help with drafting restrictive covenants, please contact us  for advice immediately.

restrictive covenants

Real World Restrictive Covenants Example

Elsa* made the decision to include restrictive covenants in some of her senior level staff's employment contracts as these staff member are privy to the business's trade secrets which if found in the wrong hands, could devastate her business. Elsa is a small business owner who relies on standard contracts which are unspecific to individual employees. She is aware that restrictive covenants should be customised to the job specifications of each employee however she is currently lacking the funds to commission a lawyer to get the clauses drafted up. In this situation, we would offer Elsa the services of our professional legal advice and so that her cashflow is unaffected, we would charge her by installments. Our legal advisers team would start the process of drafting restrictive covenants which would best serve Elsa's professional needs and to ensure they were enforceable, we would periodically review the covenants. Additionally, we offer economical legal assistance should an employee breach a restrictive covenant which would enable Elsa to seek potential damages as well as defend her company interests.

*”Real World Examples” use fictitious characters in hypothetical legal situations unrelated to previous cases.