Enforcing restrictive covenants in employment contracts

In UK employment contracts, it is not uncommon to find restrictive covenants. These clauses are intended to safeguard an employer’s interests by placing restrictions on what employees can do after leaving a job, encompassing areas like non-competition, non-solicitation and non-poaching. However, the enforceability of these covenants is far from straightforward, hinging on factors such as reasonableness and consideration.

In this article, we explain what restrictive covenants are, common types of restrictions and types of reasons why they may not be enforceable.

What are restrictive covenants?

Restrictive covenants, also known as post-employment restraints, are clauses included in a contract of employment in the UK that place restrictions on an employee’s activities after they leave their job. These clauses are intended to protect the employer’s legitimate business interests, such as confidential information, trade secrets, client relationships and the stability of the workforce.

Generally, these clauses are used for senior employees, but they could be in any employee’s contract of employment. 

Common types of restrictive covenants in employment contracts

Restrictive covenants are essentially clauses within an employment contract, which protect the business’ interests. There are four common types of restrictive covenants, these include:

1. Non-competition clauses – These prevent an employee from working for a competitor or starting a competing business within a specified geographical area and for a certain period of time.
2. Non-solicitation clauses – These prohibit an employee from soliciting or approaching clients, customers or other employees of the company for a set period after leaving the job.
3. Non-dealing clauses – These prevent an employee from dealing with or providing services to clients or customers of the company, even if they were not actively solicited.
4. Non-poaching clauses – These prohibit an employee from enticing or recruiting other employees of the company to leave their employment.

It is important to note that the enforceability of restrictive covenants can vary depending on factors such as their reasonableness, the specific wording used, the employee’s role and seniority and the legitimate business interests being protected. If an employee breaches a valid and enforceable restrictive covenant, the employer may seek legal remedies, such as an injunction or damages, to enforce the terms of the agreement.

Restrictive covenants may be unenforceable by the employer in the UK under certain circumstances. 

Are restrictive covenants enforceable?

In some circumstances, restrictive covenant clauses within an employment contract may be deemed unenforceable. This can be for various reasons, however, the most common include:

• Unreasonable restrictions – If a restrictive covenant goes beyond what is reasonably necessary to protect the employer’s legitimate business interests, it may be considered unreasonable and unenforceable. The court will assess the specific circumstances, including the duration, geographical scope and the activities restricted, to determine reasonableness.
• Lack of consideration – For a restrictive covenant to be enforceable, there must be adequate consideration provided to the employee in exchange for accepting the restrictions. This consideration could be in the form of a promotion, pay raise or other benefits (or simply your wage if the restrictions were in your contract when you started). If there is no valid consideration, the covenant may be unenforceable.
• Protecting an illegitimate interest – Restrictive covenants must be designed to protect a legitimate business interest, such as trade secrets, confidential information or customer relationships. If the covenant is intended to prevent fair competition or to unreasonably restrict an employee’s future employment opportunities, it may be considered unenforceable.
• Incorrect drafting or ambiguity – If the restrictive covenant is poorly drafted, unclear or ambiguous, it may be open to interpretation and therefore unenforceable. The court will generally interpret any ambiguity in favour of the employee.
• Public policy considerations – Restrictive covenants that are contrary to public policy, such as those that attempt to prevent an employee from engaging in a lawful profession or trade, may be deemed unenforceable.
• Employee breach – If an employee is dismissed in breach of contract, it can potentially impact the enforceability of the restrictive covenant. If the employer breaches the employment contract, such as by wrongfully dismissing the employee without just cause or proper notice, it may be seen as a repudiation of the contract. In such cases, the employee may be able to argue that the restrictive covenant is no longer valid or enforceable.

It’s important to note that the enforceability of restrictive covenants depends on the specific facts and circumstances of each case. If an employee believes that a restrictive covenant is unenforceable, seeking legal advice is advisable to understand their rights and options.

How can our employment lawyers help?

Employment contracts can be difficult to understand and read, especially when additional clauses such as restrictive covenants are included. Employees should carefully review and consider the terms of any restrictive covenants before accepting a job offer or leaving their employment. In some circumstances, you may wish to seek independent legal advice to fully understand the implications and enforceability of the clauses, this is where our team can help.