When is a restrictive covenant truly restrictive?
Lucy Tarrant, managing director & solicitor, Cognitive Law
I’ve had a series of restrictive covenant cases recently, both from former employees and former employers, and I have repeatedly been asked “are they enforceable?”. Fair question really, but unfortunately for the former employer, the answer is not always yes.
We all know that a restrictive covenant which is wider than reasonably necessary to protect the legitimate business interests of the employer is at risk of being unenforceable. In my opinion, the narrower the restriction the better.
And don’t forget, the Court will assess the enforceability of a restrictive covenant as at the date the employment contract was entered into, rather than when employment was terminated. That is because the scope of the restriction must be relative to an employee’s role in a business. If a junior employee has restrictions that are far more extensive than the position warrants, they may not be enforceable. That also means it’s important for an employer to review the level of restriction as the employee moves up the ranks, to ensure they remain relative. Employees don’t grow into their restrictions!
So, what is likely to be enforceable? Factors affecting reasonableness vary but may include the scope of the role, the restrictions’ duration, the geographical location, the nature of the business, the nature of the employee’s role and whether the covenant is usual in the sector.
For example, in terms of a geographical location, a restrictive covenant simply preventing an employee from competing in the same industry within 10 miles of the employer’s office is more likely to be enforceable than a covenant which prohibits them from working in the same industry anywhere within the UK. However, and I might get shouted down here, I’m not convinced geographical restrictions are as relevant as they used to be. Obviously it depends on the market sector, but in recruitment, now employees can work remotely from virtually anywhere, I think geographical restrictions are a bit meaningless.
What about duration? Well, it is common practice for a restrictive covenant to apply for a period of time post termination of between 1 and 12 months. Covenants at the longer end are only likely to be enforceable for very senior employees who know the intricacies of the business. A period of time longer than 12 months will rarely be enforceable. What the Court will look at is for how long the information that the employer wants to protect remains confidential before it becomes obsolete or enters the public domain; and how long it will take to build fresh relationships with the former employee’s contacts. The longer those periods are, the more reasonable it is to impose a covenant with a longer period of restriction.
And what can actually be restricted? Competing in the same space and soliciting clients are the primary restrictions, but in order to be enforceable, those restrictions need to be as specific as possible, i.e. defining exactly what space is directly competitive and what clients (or type of clients if you don’t want to list them) can not be approached.
That’s a very basic overview of enforceability, in a subject that has books written about it alone, but the next time you wonder if it’s enforceable, these points should head you in the right direction.
Cognitive Law’s solicitors fully utilise their wealth of experience gained working within the recruitment industry and are well placed to assist if you have specific questions about the enforceability of restrictive covenants.
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