Restrictive Covenants: A timely reminder of their importance
Restrictive covenants are one of those matters, that employers tend to only scrutinise when they are looking to terminate the employment relationship or an employee resigns and it is clear that they are looking to set up in competition.
Departing employees are often in the position that they can take advantage of confidential information, customer and client details or other information about their employer, after they leave. They could seek to use this information for their new employer, or in order to set up a competing business.
The recent closure of Hertfordshire based recruitment business HEF Recruitment (“HEF”) serves as a timely reminder about the importance of having robust restrictive covenants in place. Jason Robinson, the owner of HEF claims the closure was caused by a former employee taking 500 clients from HEF’s client database to set up his new firm upon leaving.
Carefully drafted restrictive covenants may have rescued HEF from closing.
A restrictive covenant is a term which restricts the way a party can act. Commonly used in employment contracts, they protect the employer's business by restricting the activities of an employee after the employment has ended. For example, preventing a former employee from soliciting other employees or clients away from the business.
Careful drafting of restrictive covenants is imperative, as one which is wider than reasonably necessary to protect the legitimate business interests of the employer may be unenforceable. Therefore the more precise and narrow the restriction the better. Consideration needs to be given to:
- Scope - a restrictive covenant preventing an employee from competing in the same industry within a vicinity of 10 miles of the employer’s office is more likely to be enforceable than one covering the UK for example.
- Duration - it is common for a restrictive covenant to apply for 1-12 months post termination. Covenants at the longer end are only likely to be enforceable for senior employees.
- Industry factors - is the covenant usual and necessary within the sector
Careful drafting of restrictions can make all the difference to protecting your business interests - don't leave it until an employee is leaving to take advice.
Call Marie Maguire to have a chat on a confidential and without obligation basis about any concerns regarding your employee’s current contracts and restrictive covenants. We can identify any potential issues of concern and how to address these before they become a problem.