RESTRICTIVE COVENANTS
CD: Why might an employer include restrictive covenants in a contract? What limitations could these impose on a departing employee?
England: Restrictive covenants are usually included in a contract to protect the business in the event that an employee attempts to take clients or work away with them when they leave. This might typically happen when an employee sets up their own business or goes to work for a competitor. A restrictive covenant will specify that the employee will not carry out certain activities for a specified period of time following the termination of their employment. Without this protection, the financial consequences for the employer’s business could be severe. There is, however, a general public law principle that contractual terms in restraint of trade will not be enforceable, except where the restriction is necessary to protect the employer’s legitimate business interests. In practice, this means that restrictions should only limit the former employee’s actions to the minimum extent and for the shortest period necessary to protect the business.
Canning: Legally, the starting point for restrictive covenants is that they are unenforceable restraints of trade unless they do no more than what is reasonable to protect an employer’s legitimate business interests. This will usually involve preventing the employee from working for a competing business, with specific customers, or in a specific industry for a certain period of time – usually up to six months – after they leave. Restrictive covenants could also prevent an employee from poaching remaining employees. Restrictive covenants are included in employment contracts to ensure stability and continuity for the employer and their operations.
Jul-Sep 2025 issue
Gateley Legal