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Accordingly, it’s vital that businesses protect those assets by using the legal safeguards available to them; from the right contractual provisions to taking enforcement action in the courts when necessary.
Our experienced restrictive covenant solicitors are here to advise and guide you, whether you’re an employer or employee.
Restrictive covenants can prohibit a wide range of competitive activity, but the most common seek to prevent:
Are restrictive covenants enforceable?
It’s a common question and the short answer is yes, if they are reasonable.
However, the full answer is usually much more nuanced, particularly when it comes to the practical considerations of enforcing – or circumnavigating – such restrictions and the risk of litigation.
Current restrictive covenant law provides that in order to be enforceable, the restrictions must go no further than is necessary to protect an employer’s legitimate business interests. Post termination restrictions which go too far are open to challenge in the courts, with the risk that they are deemed unenforceable and therefore do not protect the business at all. Sometimes we see businesses using restrictive covenants for their deterrent value (even when those covenants may not stand a good chance of being enforced), but this effect may be limited if the provision is too wide and the individual is aware that this is the case.
Often, our team of restrictive covenant solicitors hear the common misconception that restrictive covenants are generally unenforceable. As set out above, it depends on the context. Whilst it might be true of some clear cases, in practice we find that many situations are much more finely balanced, so it is nearly always wrong to assume that there is nothing to worry about if you renege on your agreement.
It’s important to consult an experienced specialist when you are preparing post-termination restrictions or considering how best to react when they are breached by former employees. Likewise, for the individual, expert advice can be invaluable when planning a move to a competitor business.
At Waterfront our team of restrictive covenant solicitors have more than 20 years’ experience advising on all aspects of the protection of confidential information and the law of post-termination restrictions.
What is a reasonable restriction?
The answer depends on the relevant circumstances and can differ widely in each case. Common circumstances which will be taken into account include the seniority of the employee (both when they agreed to the restriction and now) and how much time a business needs legitimately to protect itself from the damage which could be caused by the departing individual.
For example, a senior employee who is privy to a lot of confidential information and therefore has the most ability to hurt the business, even up to a year after leaving, might be subject to a 12-month restriction. But this would be too much for a junior position, where access to confidential information is usually very limited. A long sales-cycle, such as those seen in the insurance industry where contracts are usually renewed annually, could make a 12-month restriction fair but in a faster moving business it could be too much.
Other relevant factors could include the geographical reach of the clause. A local business such as a hair salon or dentist’s surgery would probably be fine to restrict competition in the same town but not further afield. Compare that to a business with national or even global reach, where widening the scope accordingly would be fair.
Our specialist restrictive covenants solicitors can help you put in place appropriate contractual restrictions, carefully drafted to maximise enforceability in compliance with restrictive covenant law, so that the risk of a current or ex-employee damaging your business is limited.
If there is a breach or damage is caused our team can vigorously defend your interests whilst guiding you on the best strategy to limit any losses and to seek adequate recompense from the other party, whether by way of an agreed resolution or action in the civil courts.
If you are a prospective employer concerned about an applicant’s existing post-termination obligations to their previous employer, we can assist by advising on the risk to your business should that individual come to work for you in breach of their restrictions, or where their duties might result in them breaching their obligations to their former employer. Even though you are not a party to the contract in question, it can be possible for the aggrieved business to seek redress from you if you have induced your new recruit to breach their obligations.
Generally speaking, our employee clients come to our team of restrictive covenant solicitors for guidance at any one of the following four stages.
The first is when restrictions are proposed by their employer, usually as part of the job offer and found in the draft employment contract. Advice at this stage can be invaluable in identifying what is standard or unusual as well as any “red flags” and in helping you avoid an ill-advised change of job on terms which you may live to regret further down the line. If the terms are not acceptable, we can assist with the negotiation of provisions which are fair to both parties, whilst not unreasonably preventing you from moving on to a new job in future.
The second is when an employee is leaving a business and wants to negotiate the reduction or removal of their restrictions, often as part of a settlement agreement or agreed exit. Depending on the context and the leverage available to them, the individual might be in a good negotiating position to get the freedom they want when searching for their next job. Often a compromise can be struck which allows for that flexibility whilst still affording the business key protections.
Third, we advise employees on their obligations and the risks involved when they are intending to set up in competition with their employer, or when they are planning to act in breach of their contractual restrictions. Sometimes individuals are not sure if their plans would put them in breach of contract and, again, our restrictive covenant solicitors can provide valuable guidance here.
Finally, we help employees when they have received a letter before action and the threat of court proceedings from their previous employer. This can mean strenuously defending our client’s right to move on without unfair restrictions imposed on them, brokering a sensible agreed resolution, or any combination of the two.
Whenever you need us, taking legal advice at an early stage (and before taking steps which could expose you to substantial risk and cost) is essential in helping you identify your best course of action, both from a legal and commercial perspective.
Our restrictive covenant solicitors are here to protect your interests
Whether you are an employer or individual, we invite you to take advantage of our depth of experience in this area. Before a dispute arises, our clients rely on us to plan the best strategy for them. When matters become contentious and legal action is threatened or brought, we are determined to fight on each client’s behalf and achieve the best possible outcome for them.
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