In today’s competitive market, employers need to be able to protect their commercial interests. Many employers assume that they are protected in relation to confidential information and client details. However, the only real way to legally safeguard your business is to implement a restrictive covenant agreement with applicable employees.
What is a Restrictive Covenant?
A restrictive covenant is a document that employers ask employees to sign as part of their contractual paperwork which places restrictions on any employment which the employee takes up once their current employment ends. It need not only be introduced at the start of employment – it may be introduced part way through employment with consultation and agreement with the employee.
They are put in place mainly to safeguard the employer’s interests in terms of protecting the sensitive information that the employee would have been privy to as part of his/her job which is integral to the employer’s company. Such information is considered invaluable to the success of the company and employers often want to take measures to prevent that information being used to their effective detriment by individuals once they are no longer employed by them. Areas that are usually offered such protection in a restrictive covenant are the industry knowledge gained by the employee whilst with the employer; the current client base, any prospective clients and also current employees.
What does a restrictive covenant do?
The practical effects of a carefully drafted restrictive covenant would normally cover some or all of the below:
- Non-solicitation: the employee is prevented from approaching current clients of the employer or prospective clients (who have already been approached by the employer) to conduct the same business, either on their own account or as part of a competing business, as that conducted by the employer;
- Non-competition: the employee is prevented from conducting the same business, either on their own account or as part of a competing business, as that conducted by the employer;
- Non-dealing: this is similar to non-solicitation but prevents the employee from dealing with the employer’s clients whosoever has initiated the contact between the parties.
- Non-poaching: the employee is prevented from poaching employees of the employer.
All of these restrictions are placed on the employee in respect of a limited time period post termination. This time period will differ from employer to employer, but is often for no longer than 12 months. Occasionally a restrictive covenant will restrict an employee’s future employment in terms of geographical location by stating that that employment cannot be taken up, within the designated time period, within a given radius – measured in miles/ kilometres – from the employer’s premises.
Reasonableness
Employers do not have free will to construct restrictive covenants as they wish. In order for a restrictive covenant to be valid in the courts, it must be considered to be reasonable so cannot place a blanket restriction on the employee’s future employment. The time period and/or the geographical radius within which the restrictions are placed must not be unrealistically wide and therefore each employer should consider carefully the parameters they will include taking into consideration where in Ireland they are situated and their particular industry. As an example, let’s consider the below fictional restrictive covenant which a hairdresser who is solely based in Cork City issues to one of their stylists:
- “The stylists agrees with the company that, for a period of three calendar years following termination of their employment, they will not be employed in the capacity as a stylist by any business located in the province of Munster.”
A court will most definitely strike down this covenant as being unreasonable as firstly 3 years is too long for any person to not be able to work within their local area. Furthermore, if the hairdresser’s clientele is solely based in the Cork City region then there is no reason why the employee could not work elsewhere in province of Munster. Thus, the advice is simple: make sure any covenant you introduce is tailored specifically to your business needs and ensure that it does not go any further than is reasonably necessary to protect those needs.
Enforcement
A restrictive covenant is legally binding document which the employer may enforce though the courts if it is alleged that the employee has breached it. Enforcement will take place through the civil courts, rather than an Employment Tribunal, and if the employer is claiming damages, he should be able to show that his company has suffered financial loss from the breach.
Should you have any queries or concerns in relation to Restrictive Covenants please don’t hesitate to contact our 24 hour advice service on 01 855 5050
