Restrictive covenants are only enforceable if they go no further than necessary to protect a legitimate business interest. However, many are included as a deterrent in full knowledge that they would never be enforced. Others appear in contracts as standard, without thought as to whether they would ever be enforceable.
Our employment lawyers can advise whether any restrictive covenants in your Contract of Employment are likely to be enforceable by your employer, together with any tactics they are likely to use. Our restrictive covenants lawyers can do this at any stage: before you sign the contract, when you are thinking of leaving for a competitor or after you have handed in your notice.
The remedy for breach of a restrictive covenant is an injunction. Before commencing injunctive proceedings, it is usual for an employer to have a Solicitor write to their former employee requesting undertakings to avoid a High Court claim for an injunction. If you receive such a letter, our employment lawyers can advise on the likely enforceability of any restrictive covenants and suitability of the proposed undertakings before corresponding with your former employer’s Solicitor. It is often possible to agree changes to proposed undertakings, which are often drafted in the strictest terms. If settlement on these terms is not possible, we can help you defend proceedings for an injunction.
Our employment lawyers are based in our London office but can also see you at our Watford Office.
Restrictive covenants, post-termination restrictions or non-compete clauses are clauses in employment contracts that restrict what an employee can do after leaving employment. They commonly include non-competition, non-dealing and/or non-solicitation clauses in respect of both clients and key employees.
Restrictive covenants may amount to an unfair restraint of trade so they are only enforceable if they go no further than protecting the employer’s legitimate business interest. Blanket bans on working for a competitor are less likely to be enforced than time-limited focused restrictions on contacting or working with key clients.
Provided that there is no breach of contract by the employer, restrictive covenants can still apply in a redundancy situation. The question is more one of practicality: if the work the employee did is no longer done by the employer, there will be little commercial incentive to enforce a non-competition covenant. Conversely, if employees are made redundant when a business is struggling but it is trying to retain key clients, it may be more likely to enforce restrictive covenants.
Many employment contracts contain the right to place an employee on garden leave, which is often used when they give notice that they are leaving for a competitor. Restrictive covenants can be used in conjunction with garden leave, but they are more likely to be enforced if the time period is reduced by the amount of time spent on garden leave when the employee is not able to contact key clients and staff.
If the employer breaches the Contract of Employment, any restrictive covenants fall away and can no longer be enforced. This applies in the case of Constructive Dismissal. If you believe that you have been constructively dismissed, the courts would look at that claim on its merits before determining whether there had indeed been a breach of contract by the employer. However, they may well uphold the covenants in an interim injunction, pending a decision about whether there has been a Constructive Dismissal that means they should not be enforced.
It is common for a Settlement Agreement to confirm that the restrictive covenants in the Contract of Employment will remain in force. Others attempt to impose new restrictions. In the latter case, it is important to ensure that separate consideration is provided to protect the tax-free status of any severance pay.
Before commencing injunctive proceedings, it is usual to write to an ex-employee suspected to be in breach of restrictive covenants to seek undertakings that they will cease the activities said to be in breach. There can be serious consequences for breaching an undertaking so it is essential that you receive proper advice about their likely consequences and indeed whether or not they are appropriate in the circumstances.
Although the usual remedy for enforcing restrictive covenants is an injunction to prevent further breach, sometimes the damage is already done. In such cases, it is possible to seek compensation for lost profits as well as or instead of an injunction to prevent further breaches.
A springboard injunction is used when employees have used confidential information to gain a head start in a competing business. It can be sought whether or not that employee has restrictive covenants against competition provided that there is breach of duty regarding confidential information. Employees can be required to account for profits earned because of that unfair head start as well as being injuncted from further use of confidential information.
Defending proceedings for an injunction is undeniably costly. As well as your own legal costs, you must also budget for the possibility of being required to pay your former employer’s costs if the injunction is granted. Our restrictive covenants lawyers can however advise you in pre-action correspondence and seek to agree a solution that avoids expensive litigation.