Restrictive Covenants in Employment Contracts

Published 22nd November 2024

But here’s the catch: getting them right is not easy. Mess them up, and they’re worth less than the paper they’re printed on. They have to be carefully drafted and customised to be effective. Enter Kingfisher. The partner that’s got your back to make sure your restrictive covenants are effective, reasonable, and enforceable. With Kingfisher’s expertise, you can rest easy knowing your business interests are protected by robust legal safeguards.

What Are Restrictive Covenants, and Why Should You Care?

Let’s cut to the chase. Restrictive covenants are contractual clauses that keep employees from doing certain things that could hurt your business, both while they’re on the job and after they’ve left. Think of them as guardrails to ensure that your clients, trade secrets, and overall business integrity stay intact. Without these guardrails, you’re leaving your company vulnerable to threats from competitors, former employees, and even from within.

Restrictive covenants act as an insurance policy that prevents your valuable assets from walking out the door the moment an employee decides to leave. Whether it’s your clients, sensitive business information, intellectual property, or the talent you’ve cultivated, these are the things that make your business thrive, and restrictive covenants are there to keep them safe.

Types of Restrictive Covenants You Should Know About

There are a few types of restrictive covenants in employment contracts that you need to be aware of:

Non-Compete Clauses: These clauses keep former employees from joining a competitor or setting up a competing business within a specific geographic area for a defined period of time. This is crucial if the employee had access to confidential information that could give a competitor an unfair advantage. It’s like ensuring that the secret sauce to your success doesn’t end up on someone else’s menu.
Non-Solicitation Clauses: These clauses stop your ex-employees from poaching your clients. Think about it. Your clients have come to trust your business, often through relationships cultivated by your staff. You need to protect that hard-earned trust.
Non-Dealing Clauses: This takes non-solicitation a step further. It prevents your ex-employees from dealing with former clients at all, no matter who makes the first move. It’s about making sure that once the employee leaves, the door is firmly closed to any client dealings that could take revenue out of your pocket.
Non-Poaching Clauses: These clauses prevent a former employee from recruiting your current workforce. The last thing you need is an ex-employee draining your business of its best people just when you’re working to grow.
Confidentiality Agreements: These clauses ensure that sensitive information, including trade secrets, client data, and other proprietary knowledge, remains protected even after the employee leaves. This is vital for protecting a legitimate business interest, particularly when an employee has had deep access to confidential information.

These aren’t just legal jargon. These are the tools that help you keep what’s yours. Without them, you’re risking your hard-earned business to chance.

The Legality of Restrictive Covenants

Now, restrictive covenants sound great, but there’s a catch. They’re only enforceable if they strike the right balance. UK employment law aims to protect your business, but it also wants to make sure employees have a fair shot at employment. If your covenants are too broad or unreasonable, a judge will rip them apart. This is where expertise in drafting them is crucial, something Kingfisher excels at. It’s about finding that sweet spot where the restrictions are protective, yet reasonable enough to be upheld in a court of law.

Key factors to consider include:

Legitimate Business Interests: Protecting client relationships, trade secrets, workforce stability, and intellectual property.
Reasonableness: Ensuring the restrictions are appropriate in their scope, duration, and geographic coverage.
Post-Termination Restrictions: These are often used to prevent an employee from immediately joining a competitor or soliciting clients right after they leave.

No business owner wants to invest time and money into a legal contract that will crumble under scrutiny. This is why understanding the enforceability of restrictive covenants is crucial.

What Makes a Restrictive Covenant Stick?

Legitimate Business Interests: You need a valid, legitimate business reason to have a restrictive covenant in place, like protecting client relationships, trade secrets, intellectual property, or workforce stability. If you can prove that your restriction is necessary for these reasons, you’re already halfway to success.
Reasonableness: The restrictions must be reasonable in their scope, duration, and geographic coverage. This means you can’t be overly harsh, like barring an ex-employee from working in the entire UK for five years. Judges don’t like overkill. They want to see fairness in these restrictions, and Kingfisher knows just how to strike that balance. We understand the nuance that comes with drafting these clauses, ensuring they are reasonable and defensible.

Drafting Enforceable Restrictive Covenants

Customisation for Specific Roles

One size never fits all, especially in legal matters. Restrictive covenants need to be tailored to fit the specific role of each employee. A blanket approach just doesn’t cut it. Every role in your business carries different levels of risk and influence. Kingfisher excels at customising these covenants so they fit your needs and ensure enforceability.

Whether it’s your top sales manager or an entry-level analyst, we ensure the right level of restriction is in place. Tailored covenants not only protect your business but also demonstrate to a court that you’ve been reasonable and fair in your approach.

Duration and Geographic Limits

Here’s where many people trip up: the length and breadth of your restrictions. Typically, 6-12 months is the sweet spot. Anything more, and you risk the covenant being declared unenforceable. And geography matters. Keep it relevant to where your business operates.

If you’re a local business, don’t attempt to restrict work across an entire region. It simply won’t stand up in court. Kingfisher ensures that every element of your covenant: time, scope, and area, is perfectly balanced. We make sure your covenants are effective without overreaching.

Garden Leave

Want an extra layer of protection? Garden leave is a great strategy. It keeps the employee away from competitors during their notice period while still on your payroll. This reinforces restrictive covenants by cooling off any potential business secrets they might have. Essentially, it gives you a buffer period, ensuring that when they do re-enter the workforce, the information they have is already dated. Garden leave is particularly useful for roles involving sensitive information, as it provides a safeguard while the employee transitions out of your company.

Consideration for New Restrictions

If you want to add new restrictions for an existing employee, you need to give them something in return, like a pay raise or a bonus. This “consideration” is essential to make sure any new covenants are enforceable in the eyes of the law. Without it, the employee could argue that they gained nothing from the new restriction, making it null and void. Kingfisher helps you determine the right kind of consideration that not only strengthens your contracts but also keeps your employees feeling valued. It’s about making sure everyone is treated fairly while securing your business interests.

What If It Goes Wrong? Enforcement and Remedies

Common Breaches and What You Can Do

The most common breaches are joining a competitor, working for a competitor, or trying to lure away your clients, essentially employee poaching. Kingfisher helps you spot these breaches early so you can act fast. We work with you to monitor any signs of potential breaches and provide swift, effective action to minimise damage. Identifying a breach early is key to mitigating losses, and with Kingfisher by your side, you can address issues before they escalate.

Injunctions

Injunctions are often the go-to remedy when a restrictive covenant is breached. You can get a court order, such as an injunction to prevent further breaches. This is like hitting the “pause” button until things are sorted. An injunction for breach of contract can be a powerful tool, but it requires a solid case to back it up. With Kingfisher, you get the expertise needed to secure an injunction quickly, ensuring minimal disruption to your business. We assist you in gathering the evidence needed to convince a judge that an injunction is warranted.

Seeking Damages

If a breach has cost you money, you can also seek financial damages. But you’ll need to show exactly what those losses are. That’s where Kingfisher can help you build a strong case. We assist in quantifying your losses, documenting everything meticulously, so you have the best possible chance of recouping what you’ve lost. A breach can have significant financial implications, and we help you make sure that any harm is appropriately compensated.

Practical Considerations for UK Employers

When drafting and maintaining restrictive covenants, there are several practical considerations UK employers should bear in mind:

Regular Reviews: Don’t just “set it and forget it.” As roles evolve, so should the covenants. Periodic reviews ensure they stay relevant and enforceable. The market changes, roles change, and so do your needs. A regular audit of your restrictive covenants ensures they continue to serve your business effectively. Kingfisher can help conduct these reviews, ensuring that your covenants remain as strong and relevant as they were the day they were drafted.
Tailor, Don’t Generalise: Avoid using a generic, broad clause. It’s tempting, but it could make the whole covenant unenforceable. Tailored restrictions are always more effective and defensible. Every role in your company has different access levels and risks. Kingfisher helps craft bespoke solutions that fit your unique needs—ensuring your covenants actually do what they’re meant to do. A customised approach not only makes your covenants stronger but also demonstrates fairness and consideration, which goes a long way in the eyes of the law.

How Kingfisher Can Help

Kingfisher offers end-to-end support for restrictive covenants, from drafting to reviewing to enforcement. Whether it’s a complex non-compete clause, a straightforward non-solicitation clause, or any other type of post-termination restriction, we make sure your covenants hold up in court. Plus, with 24/7 support, we’re here whenever you need us. Employment law is a minefield. Let Kingfisher guide you through it.

Conclusion

Restrictive covenants are powerful tools for protecting your business, but they have to be done right. Too loose, and they’re worthless. Too tight, and they’re unenforceable. Kingfisher’s expertise ensures that your covenants strike the right balance, keeping your business protected and compliant with UK employment law. Don’t leave it to chance. Reach out today and let us help you secure your business’s future.

FAQs

Are restrictive covenants legally binding in the UK?

Yes, restrictive covenants can be legally binding in the UK, provided they are reasonable in scope and serve to protect legitimate business interests. They need to balance the protection of your business with the individual’s right to work. Courts will assess their fairness, and overly restrictive or broad covenants are likely to be considered unenforceable.

What duration is enforceable for non-compete clauses?

The duration for enforceable non-compete clauses typically ranges from 6 to 12 months. Anything longer may be considered unreasonable unless you can justify the extended period as necessary to protect a legitimate business interest. Factors like industry standards and the employee’s role can also influence what duration is deemed enforceable.

What happens if an employee breaches a restrictive covenant?

If an employee breaches a restrictive covenant, the employer can take legal action, which may include seeking an injunction to prevent further breaches or pursuing financial damages. The type of remedy will depend on the extent of the breach and the resulting impact on the business. Kingfisher can guide you through the enforcement process to minimise damages to your business.

How can I draft enforceable restrictive covenants?

To draft enforceable restrictive covenants, you must ensure they are tailored specifically to the role of the employee and protect a legitimate business interest. The restrictions must be reasonable in terms of duration, scope, and geographic coverage. Consulting with legal experts like Kingfisher will help you craft covenants that are both protective and enforceable, balancing your needs with legal compliance.

What consideration is required for restrictive covenants?

Consideration is something of value provided to the employee in exchange for agreeing to the restrictive covenant. For new employees, their employment itself is typically sufficient consideration. For existing employees, it could be a pay raise, a bonus, or some other benefit. Providing adequate consideration is crucial for ensuring that the restrictive covenants are legally enforceable.

Protect Your Business with Tailored Restrictive Covenants

Restrictive covenants are vital for safeguarding your business against unfair competition, client poaching, and misuse of confidential information. At Kingfisher, we ensure these critical clauses are customised to your needs, enforceable, and legally sound. With our expertise, you can confidently protect your business interests while staying compliant with UK employment law. Don’t take risks—secure your future with our tailored legal support.

Learn About Our Restrictive Covenant Services