Restrictive Covenants

Guide to Restrictive Covenant negotiation under a settlement agreement

Are my Restrictive Covenants enforceable?  Can they be negotiated under my settlement agreement?

It is important to understand the potential enforceability of any restrictive covenants as it may be possible to negotiation the removal or reduction of some of those restrictions as part of a settlement agreement negotiation.

Employers often include post-termination restrictions in senior level employment contracts.  Restrictions are usually stated to apply for a particular period of time from termination and can include:

  • Non-solicitation – restricting the outgoing employee from approaching a client, customer or member of staff with a view to obtaining their business or recruiting them;
  • Non-dealing – prevents the former employee from dealing in any way with the employer’s customers/clients, prospective clients or staff;
  • Non-compete – prevents the outgoing employee from setting up, being involved (which includes being employed) in a competing business.

The Courts are strict in their interpretation of such restrictive covenants so they need to be drafted by a specialist employment lawyer with the scope of such restrictions being carefully tailored. Failure to appropriately restrict these types of covenants may result in them being held unenforceable.

Misinformation abounds regarding restrictive covenants. We look at five myths:

Myth 1: Restrictive covenants aren’t worth the paper they are written on

There is a misconception that restrictive covenants will usually be unenforceable. Whilst badly drafted covenants may be unenforceable, carefully drafted restrictions are likely to be enforceable. Where enforceable, the employer will be able to obtain an injunction to uphold the restrictions and/or may be able to seek damages for any losses arising directly from the breach.  An employee in this situation who ignores a threat to respect enforceable restrictive covenants may also have to pay the employer’s costs in obtaining an injunction/award for damages.

Myth 2: If a client approaches me not the other way round, then I’m off the hook

Sometimes, but not always.  In addition to a block on you soliciting clients most well draft employment contracts will also have prevent you from having any business dealings with clients, even if they approach you first. If this restriction is reasonable, then it could potentially be enforceable against you.

Myth 3: My contacts are my contacts

Not always. Your employment contract might impose restrictions about what happens to contacts you gained due to/during your employment on termination. For example, you might be contractually obliged to delete certain contacts from your social media accounts before you update your profiles to say you have left. In addition, even though you may have introduced your own clients to your employer, that doesn’t mean that unless expressly stated, they won’t be covered by the post termination restrictions in your contract.

Myth 4: My old employer can’t prove I’ve done anything wrong

Even if you think you have carefully deleted any trace of incriminating emails, documents and text messages, any harmful communications you’ve sent using a work device can usually be recovered. In a relevant case, an ex-employee “dropped” his work laptop in a pond, but the old employer had the pond dredged and managed to recover incriminating information!

Myth 5: My restrictive covenants look reasonable,  so there’s nothing I can do

Not necessarily. We work with senior executives who are looking to join a competitor or start their own business to properly assess whether the restrictive covenants in their contracts of employment are likely to be enforceable. This is a complex and constantly changing area of the law and the answer will depend on a number of factors.  So for example the reasonableness of post termination restrictions is considered at the date they were given to the employee.  So an employer who gave a very junior employee senior type restrictions at time the employee joined make fail to prove they are enforceable now, even if the employee has by now been promoted to a senior level in the organisation.

Even where restrictions are enforceable, if clients want to follow you and you have not solicited them to do so, it is sometimes possible to broker a deal with your former employer whereby you pay a percentage of related fees for the remaining period of the restriction in return for you being allowed to take clients.

If you are considering moving to a competitor, approaching clients of your former employer or if you are thinking of setting up on your own and are concerned about any potential restrictions, call David Greenhalgh on 020 3603  2177.

David is a recognised expert on restrictive covenants and acted on the groundbreaking case of Sunrise Brokers v Rogers.

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This article/blog is for reference purposes only. It does not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking or deciding not to take any action.

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