Restrictive covenants (or post-termination restrictions) seek to restrict an employee’s activities after their employment has terminated.
Generally, a restraint on trade will be unlawful, unless the former employer can show that:
- it has a legitimate business interest to protect (usually trade secrets and confidential information, trade connections, or the skills of the workforce)
- the restraint is reasonable in the public interest and as between the parties (considering factors such as the geographical scope and duration of the restraint).
Provided that the restrictive covenants are properly incorporated into an employment contract (or a settlement agreement, with additional consideration provided) they are enforceable.
An employer may incorporate the following types of restrictive covenants:
- a non-compete clause: restrains the employee from working for a competitor or setting up their own business in competition with their former employer
- a non-solicitation clause: seeks to prevent an employee from approaching a customer or client of their former employer with a view to obtaining their business
- a non-dealing clause: aims to prevent an employee from doing business with their former employer’s customer or client irrespective of who approached whom
- a non-poaching clause: seeks to prevent an employee from taking other members of staff with them to their new employer or business.
There is an implied term in every contract of employment not to disclose trade secrets or confidential information during employment. An employer may wish to include a clause protecting their confidential information, particularly where a role involves handling sensitive information, as it can specify what information is classified as confidential. Only the implied duty to disclose trade secrets will continue after the termination of employment. Therefore, an employer may seek to include a restrictive covenant preventing the use or disclosure of their confidential information after employment.
Employers can also protect their confidential information by including a provision in the employment contract entitling them to place the employee on “garden leave” for a specified period of time until the termination of their employment. During this time, the employee is prevented from attending work and cannot access the employer’s information nor work for anyone else.
If you breach a restrictive covenant, your employer could obtain an injunction to prevent you from working for your new employer and even claim damages for loss suffered or profit made as a result of your breach.
Ashtons Employment lawyers are able to advise on all aspects of restrictive covenants.