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How to use restrictive covenants in employment contracts

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By Rhian Radia, head of employment law, Hodge Jones & Allen

 
In the unequal world of employment law, where the bargaining positions of employers and employees are usually far apart, the area of restrictive covenants is somewhat different. The courts look to balance the interests of both the employee and the employer. It is recognised that, while an employer may have valid commercial interests to protect when an employee leaves, at the same time and never more so than in the post-Brexit era, it is important that employees are able to take their skills elsewhere.

Therefore, it is crucial an employer gets the restrictive covenants right when drawing up an employment contract.


There are different types of restrictive covenants. An employer should not assume that the best approach is to throw the kitchen sink at it and include all types of restriction and for them to apply for as long as possible. Restrictions are supposed to be individually tailored and specific. They should provide an employer with no more than adequate protection to be capable of being enforced. 

Whilst inserting the full range of restrictions into an employment contract could have a deterrent effect, there would be no guarantee that they would actually work. The full range of restrictions typically includes non-compete, non-deal and non-solicitation (clients and colleagues) restrictions. 

Employers are better advised though to give some proper thought as to which of these restrictions are actually needed to protect their interests and for how long. Further, I would recommend keeping a note of the rationale for needing the chosen restrictive covenants just in case you need to justify these in the event of a dispute in the future.

Non-compete

A non-compete restriction prevents an employee from setting up in competition or
working for a competitor for a set period of time and usually within a defined geographical distance. While an employer may prefer that a departing employee does not join a rival, it would be important to analyse whether there is actually any business risk attached to this in reality.

Non-deal

I am often asked by employees if it is OK to continue dealing with clients following termination of employment since the client followed the employee and there was no active solicitation. A non-deal restriction means an employee cannot deal with clients who come to them without having been poached. This may sound an attractive restriction to an employer but non-deal clauses are seen as the most restrictive of restrictions and some strong justification will be needed for including them.

Non-solicitation

It may be that a non-solicitation restriction will be enough. This will prevent the former employee from proactively going after clients for a set period following termination of employment, but if the client opts to join them, it is fair game. In the real world, restrictive covenants are difficult to police and proving who has approached who is not always clear.


The chosen combination of restrictions should also be thought through carefully by employers. If a non-solicitation restriction provides enough protection, there may not be any justification for a non-compete clause as well.

Employers should think about its key employees and clients who are ripe for poaching and examine whether the departing employee worked with them. If not, it cannot be reasonable to restrict the employee from dealing with them going forward if they had no influence over them when employed. 

Also, remember that the departing employee would have made contact with several colleagues during employment and the departure of only some of these employees could pose a business threat, typically a senior or technically skilled individual, and this should be stated in the restriction.


Timing-wise, a restriction can be no longer than 12 -months and should be reserved for the most senior executives. Employers should be able to consolidate their client base and connections in a much shorter period of time for most of its employees. Time spent on garden leave should be set off against the overall length of the restriction.

It’s always attractive for employers to over-restrict when it comes to restrictive covenants. However, in the event of a dispute, the courts will take into account both sides and look to enforce reasonable measures.