Over the last six months, Sherbornes Solicitors has been advising an increasing number of clients on restrictive covenants – also known as post-termination restrictions.
According to the Cheltenham legal experts, such restrictions are enforceable and can be invaluable, but they need to have been drafted skilfully. They cannot merely prevent competition or be a restraint of trade.
For a business, a well drafted restricted covenant can be the difference between keeping high levels of trade with key customers or stopping key knowledge from falling into the hands of rivals – or not.
Once an employer has an effective restriction, and perhaps has been seen to demand compliance, then this can also be an effective deterrent for others in the future.
About the expert – Trula Brunsdon, legal director at Sherbornes Solicitors Ltd
Trula Brunsdon has two decades experience as a specialist in employment law, with experience bringing and defending a wide range of claims for unfair and constructive dismissal, discrimination and breach of contract.
Mrs Brunsdon has acted in group actions, represented clients at mediation, regularly advises on settlement agreements and has a reputation for a sensitive, but practical approach to achieving her client’s objectives.
She has an interest in working with employers to solve problems and ensure their contracts and procedures are up-to-date, working with clients ranging from PLCs to owner-managed businesses.
When deciding whether a restriction is enforceable, what will courts look for?
They will look for the type of restrictions. A non-compete clause stopping the employee from working for a competitor is more onerous than a clause preventing an employee from dealing with clients if they get in touch. That in turn is more restrictive that a clause barring solicitation of clients.
Also, who the restrictions apply to. Do the restrictions just apply to those clients who the employee dealt with, or had knowledge of? Are they confined to stopping the employee doing something in competition with the company?
There’s also the length of restriction. It is often assumed that the more frequently an employee is in contact with a client, the more likely a longer restriction will be justified. Perhaps counterintuitively, frequent, regular contact allows the employee’s replacement time to build a relationship far quickly than the replacement who only has contact with a client once or twice a year.
Then there’s the regularity of client contact, another consideration might be the ‘shelf life’ of the confidential information the company is wanting to protect.
And finally, is there any geographical scope. Is there generally a correlation between the location of clients and their engagement with a particular company? If so, how far will clients travel? Is there still a relationship between what is being protected and geography if clients make contact with the company by phone or online?
Can you explain why enforceability is so important?
Enforceability is very fact sensitive. Companies need to ensure that restrictions are tailored not only to their business but also the individual concerned. What is appropriate for an individual in one role or particular level of seniority, may not be appropriate for someone more junior or in a different position.
What will enforceability be judged on?
Enforceability will be judged at the time the employee entered into the contract, therefore it’s important that restrictions are reviewed prior to any promotion. If they are not still fit for purpose, the promotion can be offered conditional on agreeing to new restrictive covenants.
What else should employers consider in these circumstances?
Employers would be wise to supplement restrictions with other measures, such as owning employees LinkedIn accounts, having the contractual right to monitor electronic activity, and the prohibition on sending work material to personal devices (even if the employee works at home).
It may take time to ensure restrictive covenants are appropriately drafted but given one size fits no-one, it’s worth taking the time to get it right, and keep it under review.
