The importance of reviewing restrictive covenants

In the case, Ms Tillman was prevented under a contractual restrictive covenant from being “interested in” any competing business for a period of six months after leaving her employment. The inclusion of the words “interested in” was held to be too wide, although the Supreme Court eventually concluded that the words could be deleted from the clause, meaning the employer could still rely on it to potentially protects its business interests.

This recent decision highlights the importance of carefully drafted restrictive covenants and clauses to protect an organisation after an employee leaves, and the need for employers to regularly review their restrictive covenant clauses, particularly when individuals change roles.  The majority of post-employment protections we see are not altered when an employee is promoted or moves to a different role, and in some organisations, the same restrictions are used for all staff, a practice which in many cases substantially impacts on an organisation’s ability protect itself later down the line.  Once an employee has left, it will be too late to improve protection, unless an employee agrees.

With this in mind, our top five FAQs on restrictive covenants are set out below:

Why are restrictive covenants important to employers?

An important aspect of maintaining a successful organisation is being able to preserve critical business assets – this includes confidential information, customer and client details and business strategies. Post termination restrictive covenants are vital in employment contracts to protect organisations from this risk.

Why do restrictive covenants need to be drafted carefully?

The doctrine of restraint of trade and general public policy means that the starting point for restrictive covenants is that they are not generally enforceable.

In order for employers to be able to enforce provisions in employment contracts which restrict what employees can do after they leave, contracts must be carefully drafted so as to be considered reasonable and necessary to protect legitimate business interests.

What factors help restrictive covenants to be enforceable?

The key factors and principles that are assessed in the enforcement of restrictive covenants are:

• How reasonable the restriction is considering both employer and employee circumstances and interests, as well as wider public interest;
• Whether there is a legitimate business interest for which the restriction is necessary to protect; and
• Whether the restriction is any wider than necessary, to afford protection.

As in the case of Tillman v Egon Zehnder Ltd, it is sometimes possible to successfully argue that restrictive covenants can have parts taken out, meaning the main provision remain intact. This is only possible where careful drafting has meant it is not necessary to modify the remaining wording, and the removal does not generate any major change in the overall effect of the particular clause.

Why do employers need to review their restrictive covenants?

The case of Tillman v Egon Zehnder Ltd has highlighted that employers need to have consideration to individual circumstances when including restrictive covenants and that blanket restrictions are unlikely to be enforceable. This is particularly relevant as employees progress through roles in the business and their restrictive covenants may no longer be appropriate or enforceable.

How can we help?

The Brachers Employment has expertise in drafting employment contracts, reviewing restrictive covenants and steps an employer can take to protect itself from potential damage from employees, or former employees.

For further information and resources find out more about protecting your business with restrictive covenants.

Alternatively, speak to a member of the employment team to discuss your employment contracts, including restrictive covenants and keep in mind that employment contracts are likely to need to be reviewed before April 2020 changes, imposing new requirements for minimum information to be given to employees, come into effect.

This content is correct at time of publication