When you employ people to work for your company you trust them with confidential information which could be integral to your company’s success and therefore very valuable to a competitor. So how do you restrict an employee from using that information if they leave?
Many Contracts of Employment contain restrictive covenants which restrict a former employee’s activities post the termination of their employment and in turn restricts their ability to make use of confidential information. There are four main types of restrictive covenant:
• Non-Compete – to prevent an ex-employee from setting up a new business in competition with your business or working with a competitor.
• Non-Solicit – to prevent an ex-employee from soliciting your clients or suppliers.
• Non-Dealing – to prevent an ex-employee from dealing with your clients or suppliers.
• Non-Poaching – to prevent an ex-employee from poaching your other employees, in particular key personnel who are vital to your business.
Primarily, restrictive covenants are used with senior employees who have access to a wide range of confidential information and regular contact with key clients. Often, restrictive covenants are used alongside ‘garden leave’ clauses which place an employee on a compulsory period of leave before they start any new employment – the purpose being to prevent an employee from taking any sensitive information with them to their new employer.
A restrictive covenant is usually unspoken of until an employee leaves and attempts, for example, to go and work for a competitor. If you consider that an ex-employee has breached a restrictive covenant you can seek to remedy this. You can seek to enforce the restrictive covenant by way of an injunction to prevent the breach from continuing (for example to stop an ex-employee working for a competitor). It may also be appropriate to claim damages from the ex-employee for the losses you have suffered as a result of their breach of the restrictive covenant.
However, attempting to enforce a restrictive covenant against an ex-employee can be difficult. The Courts view restrictive covenants as a restraint of trade and have the difficult task of balancing the competing interests of ex-employers seeking to protect their confidential information with an ex-employee’s freedom to seek new work.
The usual starting point is that restrictive covenants are unenforceable.
An employer who seeks to enforce a restrictive covenant against a former employee will need to demonstrate two things:
1. That it is designed to protect a legitimate business interest (for example, a company’s trade connections with its clients or a trade secret); and
2. That it goes no further than is reasonably necessary to protect the legitimate business interest.
The Court will give consideration to factors such as the geographical breadth of a restriction and its duration i.e. is an ex-employee prevented from working within a certain mile radius of their previous employer or are they prevented from working within the entire UK and for how long. If the combination of those factors is likely to result in a restraint of trade then the restrictive covenant will be deemed to be unenforceable. What constitutes a restraint of trade will depend on the particular facts of each case.
Since the Court will scrutinise each and every aspect of a restrictive covenant it is important that it is carefully drafted. Any restrictive covenant should be tailored to that employee and the nature of the business – a ‘one size fits all’ policy is unlikely to achieve the desired outcome. Regular review of an employee’s restrictive covenants is also required as they are promoted or given increased responsibilities or access to sensitive company information.
We at Blacks can deal with all aspects of employment contracts to include drafting of terms and any disputes arising.
Please contact Luke Patel
on 0113 227 9316
or by email at LPatel@LawBlacks.com