What is a restrictive covenant?
It is a clause in an employment agreement which prevents an employee from competing with the former employer's business after the employment has ended.
What is the purpose of a restrictive covenant?
The purpose is to help your employer protect its "legitimate trade interests" which are:
- trade secrets or confidential information - which are protectable by a non-compete clause
- trade connections which are covered by a non-solicitation provision
- the skills of its workforce which are protectable by a non-poaching clause
So what's the problem?
The real issue is that a restrictive covenant is void unless the restriction is reasonable, in the interests of the parties and in the public interest and this is for the employer to prove.
The court considers the question reasonableness at the time the covenant is entered into, not when a case is heard in court.
Are all restrictive covenants enforceable?
No. The provision must neither be longer in time nor wider in scope than is necessary to protect the employer but it cannot prevent you from using your own skill and knowledge.
Whether the provision is enforceable will depend on many factors, including what you do and what you are intending to do next.
Things to take into account, include:
- time, the restriction cannot be too long
- the kind of legitimate trade interest that the covenant covers and whether this is too wide
- area, the geographical area cannot be too wide, if this is relevant
The more senior the employee, the more likely it is that a covenant will be enforceable, since senior executives are more likely to have a stronger and better negotiating position in the first place and, of course, they do acquire a lot of sensitive and secret information.
Very often now, the issue relates to the information which would be very valuable to a competitor and, as well as the non-compete provisions, you may find that the confidentiality clause in your employment agreement is more important to your employer than you had thought.
The enforceability of a post-termination restriction can be affected by any garden leave [this is a link] provision in your employment contract and sometimes can render the provision unenforceable.
Termination of employment
The manner in which your employment is being or has been terminated can also affect the enforceability of a covenant.
Roberta can advise you on whether the restrictions in your contract are enforceable (or potentially enforceable) in the light of your future plans.
Contact Roberta for more information.