Employer protection using employment law restrictive covenants

Summary

Employee restrictive covenants are legal clauses designed to protect a business's confidential information, customer relationships, and goodwill. However, they must be carefully drafted and enforced to avoid legal challenges. Including suitable restrictive covenants is a key way to protect the employer's business interests, such as confidential information, customer relationships, and trade secrets. There are 3 main types of employment restrictive covenants: * Non-compete covenants \- to prevent an employee from working for a competitor for a specified period of time. * Non-solicitation covenants \- prevent an employee from soliciting or poaching customers or clients of their former employer for a specified period of time. * Non-dealing covenants \- prevent an employee from dealing with former clients or customers of their former employer for a specified period of time. Employers must have a legitimate reason to justify restrictive covenants if they get tested in a legal dispute with the employee. The covenants must also be reasonable and proportionate to the employer's legitimate interests. Courts will consider the following factors when deciding whether to enforce a restrictive.

Key information

• Non-compete covenants \- to prevent an employee from working for a competitor for a specified period of time.
• Non-solicitation covenants \- prevent an employee from soliciting or poaching customers or clients of their former employer for a specified period of time.
• Non-dealing covenants \- prevent an employee from dealing with former clients or customers of their former employer for a specified period of time.
• The nature of the employer's business \- businesses that rely on confidential information or customer relationships are more likely to have enforceable restrictive covenants.
• The employee's position and experience \- employees with access to confidential information or who have developed customer relationships are more likely to be subject to restrictive covenants.
• The duration and geographical scope of the covenant \- covenants that are too broad in duration or scope are more likely to be unenforceable.
• The existence of an alternative remedy \- if the employer has other ways of protecting its interests, such as non-disclosure agreements, then restrictive covenants are less likely to be enforceable.
• Ensure that your restrictive covenants are reasonable in duration and scope.
• Obtain legal advice before including restrictive covenants in employment contracts.
• Legitimate business interests \- document specific reasons for restrictions - customer relationships, confidential information, or specialist knowledge. Courts require evidence these interests genuinely need protection.
• Role specific \- tailor restrictions to individual positions - senior executives warrant broader protection than junior staff. Update as employees are promoted
• Consider other ways to protect your business – an alternative way to focus employees minds on the consequences of competing is to lock them in with shares which include bad leaver provisions. Put simply, if the employee leaves and competes or poaches customers or colleagues, he or she will lose valuable shares.

Practical guidance

• Source: Employer protection using employment law restrictive covenants

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