Restrictive covenant clauses within employment contracts restrain how employees can act in the future. Ordinarily, this relates to dealing with clients of their employer, or working for a competitor following the termination of their employment. To justify a restraint of trade clause it must be proved that the clause is reasonable and in the interests of the parties. Generally, the courts will not enforce provisions relating to mere competition. It must be established that there is a legitimate interest which requires protection – for example, confidential documents, lists of clients or specific details within contracts.
Once a legitimate interest is identified, the restrictive covenant in question needs to be no more extensive than is necessary to protect that interest – i.e. limited in scope and time. The courts are much less sympathetic to restraints within employment contracts as opposed to in commercial contracts as it is understood that usually employees are in a weaker bargaining position than employers. The enforceability of restrictive covenants is highly fact specific and will depend upon the wording of the clause.
Let’s look at previous decisions relating to restrictive covenants and their enforceability and reasonableness.
In one case the High Court was asked to consider whether a stockbroker could be placed on garden leave for the entirety of his 12-month notice period. The court considered that the provision was reasonably necessary to protect the company’s legitimate business interests. The stockbroker had signed a revised contract which included the clause and also increased his salary from £40,000 to £120,000.
In a further case relating to garden leave, an employer was entitled to place three employees on garden leave during the period of their notice period despite there being no garden leave clause within their employment contracts. This was due to the fact that the employees had breached their contracts and there was no onus upon the employer to provide work to the employees due to the breaches.
A financial adviser had a restrictive covenant that prevented him from providing any services for a period of 9 months following the termination of his employment. However, this was ruled invalid as the adviser had been working with a client base in one particular region of the country. Furthermore, the length of the covenant was deemed too long as he had left his employment after only six months.
A six month non-compete clause was deemed invalid for a junior employee as the considered it was inappropriate for someone of that level. The clause was also deemed unenforceable as the scope was too wide. The clause sought to restrain the employee from being engaged in work of a similar nature to that of the employer to the employer’s questions – it was deemed too wide as it concerned all customers not solely those of which the employee had knowledge of or dealt with previously.
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