Every business has valuable knowledge and confidential information - for example, knowledge of clients and contracts or technology - that it considers invaluable to its success. If an employer wishes to protect the use of this information both during and after a period of employment, restrictive covenants may be included in an employee’s contract.
The standard types of covenants are where restrictions are placed on a former employee being able to work in similar employment for a competitor. This is to prevent poaching of clients or customers of the former employer, or to prevent a former employee from dealing with former clients or customers, regardless of which party approached the other. Where employee poaching is concerned, a non-poaching covenant can also be used, which prevents an employee poaching former colleagues.
Restrictive covenants can be introduced as part of specified employment contracts before commencement of work but should not be used for all staff as this would only be frowned upon if it was later taken to court.
It will be largely applicable to the more senior staff - those in contact with the sensitive information that it is necessary to protect. Having such clauses set out in the contract from the outset may help to deter employees from joining competitors and may warn off potential new employers.
However, it can also be put into operation at a later date if an employee accepts promotion, or if their duties have changed. In this case, negotiation may be required as some will not willingly agree to the restrictions being introduced and it could be crucial to be able to prove that the employee agreed to the clause.
In order for a restrictive covenant to be enforced it must be considered to be reasonable and necessary to protect the business interests. Therefore, it is important that a restrictive covenant is carefully drafted and regularly checked to ensure that it is updated if necessary.
When invoking restrictive clauses, employers should consider what they want to achieve and the commercial repercussions of taking a particular stance in relation to publicity, client relationships, management time and cost, etc. Legal action in this area can involve a substantial amount of time and money.
