Restrictive Covenants

Restrictive Covenants

Restrictive covenants have become a useful tool for employers to protect their business from departing employees or their new employers. Having restrictive covenants in writing helps employers to enforce these restrictions and ensure they are not breached.

As an employee, you should be cautious about agreeing to any restrictive covenant without first taking time to consider the consequences for yourself, regardless of whether you can ever envisage leaving your current employer. Restrictive covenants can prevent you taking up that dream job opportunity or starting up your own business in the future so it is vital you know where you stand.

Frequently Asked Questions

The following are some of our most frequently asked questions when it comes to restrictive agreements and covenants.

What are restrictive covenants?

Restrictive covenants allow employers a degree of business protection from former employees challenging their business interests on leaving a business. There are generally considered to be five primary types of restrictive covenants:

  • Non-competition – where you agree not to compete against a former employer whether through your own business or a competitor
  • Non-solicitation – where you agree not to approach customers (and possibly prospective customers) of your former employer in order to do business with them
  • Non-dealing – just as with the non-solicitation clause, this prevents you dealing with customers or prospective customers of your former employer. However, with a non-dealing clause, you are prohibited from dealing with those customers or prospective customers even if they approached you first
  • Non-poaching – where you agree not to attempt to bring employees of your former employer into your new business or your new employer
  • Confidentiality – where you agree not to divulge trade secrets or information confidential to your employer to third parties

These restrictions can seriously hinder your ability to start a new business or take up new employment and so you should take legal advice before signing up to any restrictive covenants.

Are restrictive covenants enforceable?

A considerable amount of case law exists in relation to restrictive covenants, covering such issues as what they can protect, how expansive they may be and what sort of employees is it reasonable they affect. The key things to remember with restrictive covenants is that:

  • They must be reasonable in their aims
  • They protect legitimate business interests, and
  • They are proportionate and drafted no wider than necessary to safeguard that business interest

With restrictive covenants, much hinges on the factual circumstances of your employment situation and so you should seek legal advice if you are unsure of the enforceability of your restrictive covenants.

What happens if I breach my covenants?

If your employer has reason to believe you have breached your restrictive covenants, the most common course of action is for them to firstly obtain an interim interdict. This is effectively a court order compelling you to stop acting in breach of your restrictive covenants.

In Scotland all that an employer needs to show for an interim interdict to be awarded is that there is a possible case that you are in breach. So it is possible for an interim interdict to be issued against you when you have not in fact breached your restrictive covenants. In that case you can, of course, challenge the order, but until the court removes it, you would be prohibited from carrying out the activities it prevents. Furthermore, you would not receive notice that your previous employer is seeking an interim interdict until it had been granted.

This situation can, however, be avoided by lodging ‘caveats’ with the court which require you to be informed of any attempt by an employer to obtain an interim interdict.

I have been put on garden leave. Does that affect my covenants?

The effect garden leave may have on any restrictive covenants you are bound to hinges largely on the terms of your employment contract. For many senior positions, inclusion of a right to put an employee on garden leave is usually standard as it allows an employer to exclude a departing employee from the workplace.

If you are put on garden leave and your contract specifically allows your employer to do so, you will remain bound by the terms of any restrictive covenants as there has been no breach of contract.

However, the position is different if your employment contract does not provide a garden leave clause. If your employer places you on garden leave without there being contractual provision for that, this may be a breach of your employment contract induced by your employer. This is significant because all employment contracts have an implied right of work and non-contractual garden leave forced on you by your employer would breach that right. As a result of your employer’s breach, it is likely you would no longer be bound by your restrictive covenants. You should always take legal advice over a possible breach of employment contract.

Can I carry on working with a client when I leave to set up on my own?

Your ability to carry on working with a client will almost certainly be affected by any of the most common restrictive covenants. If your employment contract or settlement agreement contains a non-competition, non-dealing or non-poaching clause, any attempt on your part to continue working with a client is likely to put you in breach of your restrictive covenants. You should take legal advice as to the scope of any restrictive covenants before agreeing or making any arrangements to continue working with a client whether as an employee at a new business or if you have set up your own business.

How can Thorntons help?

Our experienced employment lawyers can advise you of the extent of any restrictive covenants your employer may wish you to sign up to and the effect they could have on your future career plans or ability to work in the years ahead. We can also look to dilute any proposed restrictive covenants based on how much flexibility you would like in your career and negotiate these with your employer.

Call us on 03330 430 350 to find out more about our services, or complete our online enquiry form and we will contact you.

Depending on your case and circumstances, the first step is usually to arrange an appointment to come into one of our local offices to meet an Employment Law Solicitor to discuss your situation and the way forward. We will outline your options and, depending on your circumstances, we can look at various funding options to help with your case costs.

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