Post-termination restrictions in employment contracts are an issue that we are asked to advise on often by both employers and employees. These are also known as ‘restrictive covenants’.
So what is a restrictive covenant?
Any clause in an employment contract which reduces the right of any employee to work with a competitor or set up in a business in competition with the employer, after termination. A confidentiality clause is also a type of restriction in that sense, in that it restricts what you can say about your employment after you have left. Confidentiality clauses are also not automatically enforceable and are subject to judicial supervision as well, dependant on their reasonableness.
Are such covenants valid?
They may be – it all depends on the context. They are only valid to the extent that they are reasonable, because it is a fundamental principle that every individual should have the right to earn a living by using his/her talents. However, an ex-employee should not be able to unfairly use confidential information from his ex-employer. Several factors need to be looked at to weigh the reasonableness of the covenant.
These factors include:
- Seniority / position of the employee.
- Length of service.
- Access to sensitive confidential information.
- Whether there has been consent in a settlement agreement upon termination.
- Length of the restriction, e.g. is it just six months or nearer two years?
- Specialism of the employee’s skills within a niche industry.
Sterling Law can advise you, whether you are a employer or an employee on whether an existing covenant may be deemed reasonable. If you require a contract or settlement agreement to be drafted, we can draft it to include a suitable enforceable restrictive covenant.
If you are an employee and you breach a covenant, you may be sued for substantial losses and legal costs. If you are an employer and you seek to rely on a overly-restrictive, and therefore unenforceable covenant, it will be totally ineffective. Seeking to rely on it through court proceedings without taking detailed professional advice first could be very expensive.