Restrictive Covenants in Employment Contracts

Many employers worry about staff leaving to work for their competitors - taking valuable clients and company knowledge with them. It is because of this that companies place restrictive covenants into employment contracts in order to restrict what an employee can and can’t do once they have left the business. But how feasible is it to actually enforce these restrictions?

Restrictive covenants are commonly written into employment contracts to protect the business against the misuse of confidential information and to prevent employees taking or abusing the clients of the business. However not all restrictive covenants are enforceable and it can be difficult for the employer to rely upon them if they are not correctly drafted.

For a restrictive covenant to be potentially enforceable by the courts, the clause needs to satisfy the following criteria:

• It must protect a legitimate business interest of the employer; and
• It must not go further than is reasonably necessary to give that interest adequate protection.

It is often necessary to consider if there are any other methods available to the employer that will afford the business adequate protection. Any alternative options should be explored fully and used where possible. Courts will also look to see how wide the scopes of the covenants are with regard to both time and area. Any covenants deemed to be too wide in their scope will be unenforceable by the employer.

Employers also need to be aware that in some cases the time limit upon the restrictive covenants can begin when an employee is placed onto garden leave even though their contract has not yet terminated. In cases where the restrictive covenants are set to run for the same amount of time as the garden leave, the restrictive covenants will expire at the same time as the employment contract terminates. The employer will not receive any protection beyond the gardening leave period.