Restrictive covenants

A Restrictive Covenant is a contractual term restricting an employee's activities after termination but is void for being in restraint of trade and contrary to public policy unless the employer can show that:

• It has a legitimate proprietary interest that it is appropriate to protect.
• The protection sought is no more than is reasonable having regard to the interests of the parties and the public interest.

An employer cannot impose a covenant merely to stop someone competing, but it can seek to stop that person using or damaging something which legitimately belongs to it. This type of restriction is to be distinguished from the duty of confidentiality that an employee owes to an employer. The duty of confidentiality is founded in common law and does not require an express restraint to be enforced. In principle, the duty applies whatever the circumstances of departure.

There can be no guarantee that any restrictive covenant will be enforceable and there are no general guidelines which can be specified as to what would be considered reasonable, for example in terms of time or geography. Each clause must be considered in each case by reference to the business needs of the employer imposing the restriction.

The employer must therefore consider what aspects of its business legitimately require protection from its employees by way of restrictive covenants. It must then look separately at each employee and determine what level of protection is reasonably necessary in each case.

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Published:

26 September 2011