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Restrictive covenants – advice for employees
We are often asked to advise individuals, particularly those in senior and leadership positions, in relation to their post-termination restrictions. In some cases, they may be looking ahead to a possible change of role and wondering how their employment contract restrictions might affect their future plans. In other cases, they may have already left their previous employer and have received a letter alleging they are in breach of their obligations.
We look here at some of the top issues we see in this area and what you can do to protect your position.
Be aware of what is in the contract before you sign it.
When employees start a new job, and receive a new contract to sign, minds tend not to be focussed on provisions relating to their departure.
If you are given a contract with post-termination restrictions, it is a good idea to review these and make sure you understand what they do and that you are comfortable before you sign them. Once you have signed the contract it becomes difficult to argue that you do not accept them. If the contract does contain onerous restrictions it is worth raising this with your new employer to see if you can negotiate any amendments.
Action Point: If you are unclear what the restrictions in your contract mean and how they can affect you in the future, we can review your employment contract and offer advice.
Are restrictive covenants enforceable?
There is sometimes a misunderstanding by employees that restrictive covenants are not enforceable. If they are properly drafted and they are reasonable in order to protect an employer’s legitimate business interest (such as its customer connections or goodwill) then they may well be upheld by a Court.
It is therefore sensible to take advice if you are planning to move into a job that could potentially be a breach of your post-termination restrictions. If you breach valid restrictions and cause your former employee a loss as a result, you could be on the receiving end of an injunction or a substantial claim for damages.
Action Point: If you are considering leaving your job and want to know the likelihood that your restrictions may be upheld, we can review these and advise you on whether there are any potential challenges to their validity.
There are different types of restrictive covenants
The types of post-termination restriction in your contract will often depend on your role and seniority in a business.
The most common types of restriction are:
- Non-compete clauses, which seeks to prevent you working in similar employment for a competitor;
- Non-solicitation restrictive covenant, which seeks to prevent you from approaching former customers, clients or suppliers with a view to taking work from them;
- Non-dealing clause, which seeks to prevent you from having any dealings (usually in a business context) with former clients, customers or suppliers, regardless who made the first approach;
- Non-poaching restrictive covenant, which seeks to prevent you from poaching former colleagues.
In addition to these, there may be confidentiality provisions and other clauses preventing a team move, for example.
Be aware that a restriction will generally not apply forever into the future and should be limited in terms of its length and scope, as it must not be any wider than necessary to protect your employer’s legitimate business interests.
I have received a threatening letter from my former employer. What can I do?
If you have left your former employer and your new role puts you in possible breach of your covenants, your previous employer will likely get in touch. Employees often receive a letter in the first instance, asking them to confirm they will not breach their restrictions or asking for a response by a certain deadline. If they have evidence that supports a breach, you may also be asked to sign up to new undertakings.
Whilst you can choose to ignore such a letter, this does present a risk, and your former employer may end up taking matters further which could ultimately end up very costly. Not only would you have your own legal costs, but if your employer was successful you would be at risk of having to pay their legal costs too.
Action Point: Our recommendation is to seek advice at an early stage. We can analyse your restrictions and advise if we think they are enforceable. We can also review your new job role and let you know if you are likely to be in breach. If we consider that a response is necessary, we can draft a suitable response and help you to negotiate any undertakings you might be asked to provide.
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