Restrictive Covenants

Restrictive Covenants and Confidentiality

Employers often try to protect the use of confidential information such as pricing structures and client or customer lists obtained by the employee while employed by them by inserting restrictive covenants into contracts of employment.

A contractual term restricting an employee’s activities after termination will be ineffective, unless the employer can show that the covenant:-

  •  is designed to protect the employers legitimate business interests; and
  • extends no further than is reasonably necessary to protect those interests.

Whether an interest is considered a legitimate business interest will be depend on the business in question.

Post-termination restrictive covenants may seek to prevent you from:-

  • Competing
  • soliciting customers or suppliers
  • dealing with customers or suppliers
  • enticing away employees
  • using or disclosing confidential information

When considering whether a post-termination restrictive covenant is enforceable a Court would take into account the following:-

  • the seniority of the employee
  • the nature of business/activities of the employer
  • the duration of the covenants
  • the extent of geographical restriction

An employer cannot impose a covenant simply because it does not want an ex-employee to compete with it. However, it can seek to prevent the individual from using or damaging something that legitimately belongs to it. To determine what rights may require protection, the employer must look at the nature of its business and the employee’s position in the business.

In broad terms, the rights that a court will allow to be protected fall into the following categories:

  • Trade connections (with customers, clients or suppliers) and, more generally, goodwill.
  • Trade secrets and other confidential information.
  • Stability of the workforce.

An employer is entitled to protect its relationships with its customers, clients and other trade connections (for example, suppliers). The courts have recognised that employees may build up close relationships with such people, and gain their trust. They may then seek to take advantage of these relationships in a subsequent role, even though the trade connections belong to the employer. In some cases, the customer, client or supplier may want to continue dealing with their familiar contact, and so will follow them without any encouragement or solicitation by the employee. This type of legitimate interest can be protected by means of a non-solicitation or non-dealing covenant, or in some cases by means of a non-compete covenant. In every case, the protection must be no wider than reasonably necessary to protect the legitimate interest. For information on the factors that are taken into account in assessing reasonableness

Restrictive Covenant – further advice

We can advise on whether these covenants are enforceable by the employer against you.

For further information on how our Employment Law Team can help you, call Rothera Sharp today on Nottingham 0800 088 6280 send us an email to enquiries@rotherasharp.co.uk