Restrictive Covenants in Employment Contracts
Employers are entitled to protect trade secrets, confidential information, customer connections and the stability of their workforce from unfair competition from former employees and other competitors. The protection of business interests is an issue to be considered and carefully documented at the outset of the employment relationship.
It is a myth that restrictive covenants are rarely enforced, and we regularly deal with employment disputes concerning post-employment restrictions and confidential information. Properly drafted contractual clauses that address the protection of business interests in a targeted and proportionate way will be enforced by the Courts. Claims for damages for breach of such clauses will often fail to provide employers with an adequate remedy; the more effective remedy is an urgent injunction application.
An injunction is a Court Order that requires a party either to do a specified act or refrain from doing a specified act. Examples of such Court Orders may include restrictions on former employees working in certain geographical areas or dealing with certain customers for a specified period. An injunction may also require the return or destruction of important confidential information which, in the hands of a competitor, could cause serious damage to your business.
It is a very serious matter for a Court to grant an injunction. Injunction applications, by their very nature, must be dealt with urgently and require specialist knowledge of employment law, injunction law and Court procedures. Our Employment Law solicitors and Dispute Resolution solicitors are experienced in dealing with these types of employment disputes, recognising when an application for an injunction is needed and both making and defending applications for injunctions. We work together to provide an expert and seamless service to protect your business in a cost-effective and timely manner.
Our employment solicitors are dedicated to advising on how to achieve your business objectives in the most efficient and practical way. We pride ourselves on providing straightforward and bespoke advice tailored to your business requirements and resources.
We understand that employers need to be commercial, decisive and act calmly but quickly in sensitive employment matters.
Your work will be carried out by a qualified solicitor, who knows your business requirements best. Work is also carried out at the appropriate level, depending on the complexity, sensitivity and importance of the matter.
We work closely with our clients to ensure that we meet their expectations both in terms of their objectives and in relation to costs. We know that clarity on costs is vitally important to our clients, especially at a time when businesses are challenged by sudden and dramatic changes to economic circumstances.
As standard practice, we give our clients an estimate of the costs at the outset and provide cost updates on a regular basis.
- Acting for a firm of accountants to injunct a former employee who had breached non-compete, non-solicitation and non-dealing clauses in an employment contract, including issuing a High Court claim for injunctive relief and negotiating a suitable settlement with undertakings, damages and costs on behalf of the client.
- Obtaining injunctive relief against a former employee in respect of misuse of confidential information and breach of a non-solicitation clause and non-compete clause.
- Supporting a wholesaler employer in an application for an injunction to prevent a former employee acting in breach of a restrictive covenant by using sensitive and confidential marketing information after joining a competitor employer.
What is a restrictive covenant?
A restrictive covenant is a contractual term included in a contract of employment (or sometimes a deed of restriction) intended to restrict an employee’s competitive activities after the employment has ended. Restrictive covenants usually seek to restrict a former employee from working with a competing business, or from soliciting away from the original employer customers or employees. Such restrictions are usually limited for a period of time, for example, 6 months.
What is a breach of restrictive covenant?
A breach of restrictive covenant occurs where an employee leaves employment and seeks to compete with a former employer in contravention of the restrictive covenants included in the employee’s former contract of employment. Breaching the restrictive covenant in this way is a breach of contract by the employee and the employee can be liable for loss caused by the breach. A new employer may also be liable for damage suffered for inducing the breach of contract.
How can I enforce a restrictive covenant?
The most effective enforcement action in relation to restrictive covenants is for the wronged employer to seek an urgent injunction from the Court. An injunction is a Court Order compelling an employee (and possibly a new employer) to comply with the terms of the restrictive covenant included in the contract of employment. Breach of the Court Order would be a contempt of court potentially punishable by imprisonment.
An injunction is a discretionary and interim remedy made to preserve the status quo between the parties until there can be a full trial of the issues. In practice, the granting of the injunction will deal with the dispute in its entirety as where the application is successful the wronged employer benefits from the restrictions on the employee.
Is a restrictive covenant enforceable?
It is a myth that restrictive covenants in contracts of employment contracts are unenforceable. Such restrictions are enforceable where they are carefully drafted, tailored to the circumstances and go no further than is necessary for the purposes of protecting the legitimate business interests of the employer.
There are a number of grounds on which an employee can challenge enforceability. These might include that the restrictions were not properly introduced as a term of employment or that the restrictions are excessive because, for example, the period of restriction is too long, or the geographical area of restriction is excessive. Employers seeking to introduce restrictive covenants into contracts of employment should seek advice on how to effectively and lawfully do so.
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