Restrictive Covenants

Restrictive covenants are used by an employer to prevent unfair competition after employment ends and are inserted into the employee’s contract. A clause will be classed as a restrain of trade if the employer has no interest to protect or because it is drafted too widely, it is void and consequently unenforceable.

For a restrictive covenant to be enforceable the employer must show they have a legitimate business interest to protect. Broadly, the courts will allow the following rights to be protected:

  • Trade secrets or highly confidential information
  • Trade connections
  • Employers interest in maintain a stable and trained workforce
  • The clause is reasonable in time and area

Restrictive covenants can therefore cover competition by the former employee, the soliciting of customers and clients and the poaching of employees. The clause must be no wider than is necessary to protect the employer’s business.

To enforce a restrictive covenant the employer can seek an injunction where damages are not a suitable remedy. The employer may also seek damages for breach of covenants if he has suffered loss.

If a competitor has induced a former employee to breach their restrictive covenant this can give rise to a tort claim.  Therefore an employer may chose to sue the competitor as they are more likely to have greater financial resources which may lead to a better remedy.

It is important to be aware that if an employer wrongfully terminates the employee’s contract, the individual will no longer be bound by its terms including post-employment restrictions; a restrictive covenant therefore cannot be enforced in this situation.

For an employee it is preferable to try to avoid restrictive covenants or limit them so that the employee is able to feely change employment.

For more information regarding restrictive covenants contact our team of Liverpool employment solicitors today, call us on 0151 735 1000 and ask to speak to a member of our employment department. Or try our online ask a solicitor app, it provides free legal advice direct from solicitors Liverpool can trust.

 

 

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