Restrictive Covenants – Quick Guide

Many employers seek to protect their business connections and confidential information by requiring their employees to enter into restrictive covenants which aim to limit what work can be done by that employee for a period of time once his or her employment with this employer has come to an end.

The topic of restrictive covenants and their enforceability is a long one. Below are some important things to remember:

1. Restrictive covenants are unenforceable unless they go no further than is reasonable to protect the employer’s legitimate business interests. Furthermore, the test is applied as at the date that the restrictions were imposed and NOT at the date that the employee’s employment terminated. Therefore, it is important to ensure that any restrictive covenants contained in a contract of employment are appropriate to the particular job being performed and the level of seniority of the person performing that job. Also ensure that they are reviewed each time an employee is promoted.

2. In the UK , unlike in many other European countries, employers cannot pay for covenants. Therefore, it is not possible to enforce otherwise unenforceable restrictive covenants by simply offering to pay the employee during the period of restriction.

3. Nevertheless, a garden leave provision whereby the employee remains employed and therefore entitled to the full benefit of his or her contract of employment, is a way in which employers can, to all intents and purposes, pay for the restrictions. That is because the individual is still an employee and, as such, the restrictions are imposed during rather than post employment and therefore the criteria for enforceability are less onerous. However, if the restrictive period is longer than the garden leave period, then it is important to (a) ensure that the restrictive period is drafted to reflect the fact that it will be reduced by any period during which the employee was on garden leave and (b) that the restrictions themselves are not too widely drafted to be enforceable in any event.

4. Finally, if the restrictive covenants are intended to be a deterrent rather than something the employer intends to enforce through the courts, the employer should consider including deferred benefits within the employment contract, with those benefits only being payable to the employee at the end of any restricted period.