What are employee restrictive covenants?

Posted Thursday 27th April 2023

Employee restrictive covenants are contractual provisions that restrict an employee’s activities after they leave a company. There are several types of post-termination restrictive covenants that employers may use, including:

• Non-competition clauses: these clauses prevent employees from working for a competing business for a certain period of time after leaving their current employer.
• Non-solicitation clauses: these clauses prevent employees from soliciting clients or customers from their former employer. Important to note with non-solicitation clauses is that even if the former employee does not directly solicit clients or customers of the ex-employee, there may nonetheless be a presumption of collusion i.e. that the former employee is providing the new employer with client information.
• Non-disclosure clauses: these clauses prevent employees from disclosing confidential information about their former employer.

Actions to be taken by a former employer on breach of restrictive covenants

The majority of breach of restrictive covenants cases are resolved at the interim stage, namely by an employer seeking interim relief against their former employee for breach of their restrictive covenants. The former employer should send a letter before claim to their ex-employee (and in some cases their new employer also) informing them of the breach and demanding that they stop acting in breach of their restrictive covenants. In the event of a breach of a non-competition clause, the ex-employee would have to stop working for the competing employer.

It is standard for a former employer to give 3 days’ notice to seek interim relief. Speed of action is essential in seeking interim relief. A former employer should seek legal advice and make an application to the court in quick succession.

Challenges of enforcing employee restrictive covenants?

Enforcing employee restrictive covenants can be challenging. Courts will only enforce restrictive covenants that are reasonable in scope and duration, and that are designed to protect legitimate business interests.

Employee restrictive covenants can be an important tool for protecting the value of a company in the context of a company acquisition. By preventing key employees from leaving and taking valuable knowledge or clients with them, these covenants can help to ensure that the acquired business retains its value and remains competitive. However, enforcing these covenants can be challenging, so it is important to carefully draft them and ensure that they are reasonable in scope and duration.

 

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This article 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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