Restrictive covenants are often used as a safeguard by employers to protect their business once an employee’s contract of employment has been terminated. Whilst acting as a precaution to ensure trade secrets, confidential information and intellectual property are not divulged to a competitor, it’s important for employers to understand the enforceability of such a document. What is a restrictive covenant? A Restrictive Covenant is a post-termination restriction against employees after they’ve left employment with you. The agreement restricts the individual from undertaking certain actions, such as:
- Poaching employees
- Soliciting information obtained during the course of their employment with you
- Establishing a rival business using your clientele and Intellectual Property
The document should not be used as a mere deterrent. If it’s something that’s vital to protect the viability of your business, you need to ensure that the appropriate personnel are given the agreement to sign and return e.g. senior members of staff and directors. Is the restrictive covenant enforceable? Ultimately, as the individual is no longer an employee with you, any such action will be processed through the Civil Courts as opposed to an Employment Tribunal. When assessing the enforceability of the document, a court will conduct a ‘reasonableness test’. During this assessment, it will be distinguished whether the restrictions are too wide or would be deemed inequitable to impose on the individual. A case example A leading Irish case that focuses on Restrictive Covenants is Murgitroyd & Company Limited v Purdy. While it was held that the non-compete clause of 12 months within the Covenant was reasonable for this line of work, the clauses that stipulated a restriction on dealing with potential clients over actual clients rendered the agreement unenforceable, and as such, no action could be taken against the defendant. It’s important to bear in mind during the preparation of such an agreement that you should only impose restrictions that will safeguard the viability of your business, and not hinder the individual from gaining employment for a long period of time. If you have any questions regarding restrictive covenants, please don’t hesitate to contact our 24 Hour Advice Service on 0818 923 923 where an advisor will be happy to help.
