A restrictive covenant is a clause in a Contract of Employment that attempts to restrict what the employee can do after they have left. They usually restrict employees working for competitors, communicating with clients or prospects and/or poaching staff.
Because they can hamper an employee’s ability to find another job, Courts will only enforce a restrictive covenant if it goes no further than is necessary to protect the employer’s “legitimate business interest”.
There has been a great deal of litigation over restrictive covenants, and drafting practices have changed to reflect decisions over the years. Until now, there have been conflicting views on whether and how Courts can change the bare wording of a covenant so that it isn’t too wide as to protect the employer’s interests.
The Supreme Court got to consider this principle for the first time in 100 years in Tillman v Egon Zehnder Ltd. They confirmed that it was possible for a Court to remove words from a covenant if
- After removal there would then be no need to add to or to modify what remains; and
- Removal does not change the overall effect of the contract.
Ms Tillman had a covenant not to “be concerned or interested in” a competitor for 6 months after leaving Egon Zehnder. The Supreme Court authorised deletion of the words “or interested in”, which would have caught even a minority shareholding in a competitor. As the clause still made sense without those words, and removing them didn’t alter the character of the covenant, it was permissible to do this. This made what would have otherwise been an unnecessary restriction tighter and therefore enforceable.
It is still important to ensure that restrictive covenants are fit for purpose: the ability of courts to remove words is restricted, and they cannot add words to change what remains. Before imposing restrictions, it is important to think about the access that role/person has to clients and colleagues and how they could damage the business by competing after they have left. Covenants should then be drafted carefully to make sure they do no more than necessary to stop that activity, and for no longer than necessary. If wanting to cover bases including self-employment as well as employed status, make sure that alternatives are drafted in such a way that removing words doesn’t change the meaning of the clause.
Before drafting any restrictions, we will get to know you, your business and the role to ensure that you are best protected. Our advice to you on this is privileged from disclosure; so if you opt for a restriction we think might be difficult to enforce, your employee cannot demand to see that advice if you end up in litigation. This does not apply to Employment Consultancies or other advisors, whose emails and other communications would need to be disclosed to an employee in injunction proceedings.
Whatever your personal circumstances the above is only a guide and we would advise you to contact us to obtain definitive advice as you will appreciate that each person’s circumstances are unique to them.