Restrictive covenants in employment contracts are a crucial tool in protecting your business should key employees leave your organisation to pursue new opportunities. They describe any post-termination restrictions that you ask of your team members. Written well, they can be viewed as equitable and fair by all parties; a sensible way to operate within commercially sensitive environments. In practice, the enforceability of restrictive covenants is a complex issue that requires careful consideration and a degree of legal expertise.
This blog offers guidance on restrictive covenants, employer advice on their use and real-life examples of them in action. If you are in need of UK employment contract advice, you’ll find our HR & Employment Law team can help.
Employment Contract Restrictive Covenants
Restrictive covenants in employment contracts can be the difference between safeguarding and securing your business interests and leaving the door open for others to gain a competitive advantage. Before you can use them effectively, however, it’s important to understand what they are, why they’re used, and how they work in practice.
Intellectual Property Ownership in Contracts
For many modern businesses, IP is the most valuable asset. If your contracts with developers, consultants, or suppliers don’t clearly assign ownership of intellectual property to your company, investors will see a significant risk.
It is essential to ensure every agreement specifies that IP created under its terms is owned by your business. Linking this to your copyright and trademarking strategy demonstrates control over your brand and innovations. Without this, investors may fear future disputes that undermine valuation.
Restrictive Covenant Definition & Purpose
Restrictive covenants in UK law are contractual clauses designed to prevent your employees from acting in a way that could harm your business after leaving their role. Confidentiality clauses in employment contracts are an example of restrictive covenants, but the term applies to any “post-termination restrictions” applied after employment.
The purpose of restrictive covenants is straightforward. They are typically included in employment contracts to protect business interests moving forward. For example, they may prevent a former account manager from contacting your clients to tempt them away to a new business. They might prevent a senior executive from sharing pricing structures with a new employer to gain an unfair advantage in a cost-sensitive marketplace. A researcher may be prevented from sharing intellectual property with a new team. Every business will have information that it would prefer staff not to share once they’ve moved on to new employment.
However, restrictive covenants in UK law and elsewhere can only go as far as is necessary to reasonably safeguard your interests. Anything broader or overly onerous risks being deemed unenforceable. Striking a balance between priorities and maintaining fairness ought to be a key feature of restrictive covenants.
Restrictive Covenants: Employer Advice
Why are restrictive covenants important? It is because people are typically an organisation’s greatest asset. Senior employees and client-facing staff will inevitably play a significant role in your success. Critically, this will involve managing sensitive data, sharing strategic plans, maintaining customer relationships, leading colleagues and having operational knowledge that could be advantageous to a competitor. Restrictive covenants in employment contracts protect you in cases where a key member of your team moves on by preventing the following;
- Former employees joining a rival and competing unfairly.
- Departing staff poaching clients or customers
- Former managers recruiting your staff in their new role.
- Misuse or disclosure of confidential information
When drafted properly, these restrictive covenant clauses protect you and your business, serving as a safety net when employees leave. They grow in importance if employment comes to an end through dismissal or redundancy and can be helpful in reducing the risk of disputes and reputational damage.
The Different Types of Restrictive Covenants
Understanding the distinctions between restrictive covenants is crucial for employers who wish to utilise them effectively and lawfully. Below, we examine the primary types of restrictive covenants commonly included in employment contracts.
Non-Compete Clauses in UK Law
A non-compete clause prevents a former employee from joining a competing business or setting up in direct competition with their previous employer. Because non-compete clauses directly limit a person’s ability to work, they are typically scrutinised most heavily by the courts. To be enforceable, the restriction must be no wider than necessary in terms of duration, geography, and scope of business activity. It is unlawful to simply prevent a former employee from working in an aligned business sector anywhere and forever, for example. Restrictive covenants related to competitors need to be reasonable and proportionate.
Non-Solicitation Clauses in UK Law
A non-solicitation clause stops a departing employee from approaching or “soliciting” clients, customers, or suppliers of their former employer. These are among the most common post-termination restrictions and are generally easier to enforce than non-compete clauses, provided they are precisely worded and tightly focused. A non-solicitation restrictive covenant in an employment contract should prevent a line manager, for example, from contacting their team with offers of work once they have left your organisation.
Non-Dealing Clauses In UK Law
Non-dealing covenants go a step further than non-solicitation clauses. They prohibit a former employee from conducting business with specific clients, customers, colleagues or contacts altogether. These clauses can provide strong protection for key customer relationships; however, they must, again, be proportionate and tied to legitimate business interests to be enforceable. For example, a former employee may be asked not to deal with a supplier of bespoke software for a year after moving on, but only to protect identified market-sensitive innovations.
Confidentiality Clauses In UK Law
Confidentiality clauses, or non-disclosure clauses, prevent employees from sharing or using confidential information they obtained during their employment. Unlike other restrictive covenants, these can be drafted to be in place indefinitely. Trade secrets and sensitive information can remain valuable long after an employee has left employment. However, a confidentiality clause must clearly define what constitutes confidential information. Overly broad wording that implies everything can lead to enforcement difficulties. For example, it is unreasonable to ask a former employee to reveal nothing about their previous career, but perfectly acceptable to suggest they do not share pricing formulas or calculations.
Are Restrictive Covenants Enforceable in UK Law?
The answer is yes; restrictive covenants are generally considered enforceable and can be included in UK employment contracts that you ask your employees to sign, provided they protect a legitimate business interest and do no more than reasonably necessary to do so.
The Legal Test For Restrictive Covenant Enforceability
Courts facing questions over restrictive covenants will apply two main tests to the wording of any contract. The first is to question if there is a legitimate business interest to protect. This cannot be simply limiting a former employee’s ability to work, known as restraining their trade. Restrictive covenants cannot be punitive or malicious in nature. They need to genuinely protect your trade secrets, client relationships, workforce stability, or similar. There needs to be an identifiable reason to restrict an ex-employee’s behaviour.
The next question centres on reasonableness. Is any restriction fair and proportionate? Reasonableness is judged against factors such as the employee’s role, the duration and geographic reach of any restrictions, and the specific activities being limited. For example, it’s probably unreasonable to prevent a former junior team member from moving on to a similar role in a comparable organisation. However, it might be entirely reasonable to stop a senior executive from doing so.
If either test fails, the covenant is likely to be considered void as an unlawful and unenforceable restraint of an employee’s trade. It is essential that you review any restrictive covenants in your employment contracts against these tests to minimise the risk of problems when the time comes to apply them.
Common Restrictive Covenant Challenges From Employees
In our experience, employees often challenge restrictive covenants on three main grounds. The first is excessive duration. In today’s fast-moving business world, non-competing clauses that last over 12 months are hard to justify, especially for junior colleagues. Unclear or overly broad wording is also likely to be challenged. Restrictions that don’t specify which clients, competitors, or regions are covered are difficult to defend. It pays to be prescriptive to avoid confusion, misunderstandings and disputes. Finally, poorly expressed legitimacy opens the door to challenge. If there is no clear business benefit in preventing a former employee from contacting suppliers, for example, it’s likely the covenant will be challenged.
As a rule, employers should be able to justify every element of a restrictive covenant in their employment contracts. Courts will not rewrite poorly drafted clauses. They will simply strike them out.
Examples Restrictive Covenant Employers Should Know
Court decisions over the years have provided helpful guidance on how restrictive covenants are interpreted and enforced. In one notable example, a large consultancy firm attempted to enforce a broad non-compete clause that prevented a senior employee from joining any competitor worldwide for a period of six months. The court found this too wide, noting that while the company had a legitimate interest to protect, the restriction went further than necessary. By contrast, in a case involving a specialist financial services business, the court upheld a three-month restriction limited to direct competitors, recognising it as proportionate and justified.
Another covenant was rejected in a case involving a small franchise business. A 12-month nationwide restriction was struck out, citing the fact that the company’s customer base was local and a national restriction was unnecessarily broad.
Finally, a dispute with a professional services firm highlighted the courts’ preference for precision. Restrictions carefully tied to named client relationships were upheld, while vague, catch-all clauses were not.
These examples show that well-targeted, clearly drafted restrictions are far more likely to withstand legal scrutiny than overly broad or generic clauses.
Why You Should Seek Legal Advice When Drafting Restrictive Covenants
Understanding the fine balance between protecting a business’s legitimate interests and respecting an employee’s right to work requires legal know-how.
Specialist employment law solicitors can play a crucial role in ensuring any restrictive covenants in your employment contracts are both effective and enforceable. Employment solicitors can also help avoid common pitfalls that can lead to clauses being struck out. They can craft wording for each covenant that is clear, precise, and, most importantly, justifiable in the eyes of the law.
Taking early legal advice to ensure contracts are correct is one of the most effective ways to prevent costly disputes and litigation. Restrictive covenant disagreements can quickly escalate, leading to significant expense, disruption, and potential damage to client relationships.
At Jamieson Law, our Scottish-based employment law team works closely with employers to draft, review, and enforce contractual restrictions that protect what matters most to your business.
Frequently Asked Questions
What is a restrictive covenant in an employment contract?
It’s a clause that restricts an employee’s actions after they leave, such as joining a competitor or contacting former clients.
Are restrictive covenants enforceable in UK Law?
Yes, but only if they protect a legitimate business interest and are reasonable in scope.
How long do restrictive covenants usually last?
Many last between three and six months, though senior roles may justify longer periods.
Can I include the same restrictive covenants in every contract?
It’s better to tailor them. Different roles carry different levels of risk, and one-size-fits-all clauses are more likely to be unenforceable.
What happens if an employee breaches a restrictive covenant?
You may be able to seek an injunction to stop the behaviour and/or claim damages for any loss suffered.
Should I get legal advice before drafting or enforcing restrictive covenants?
Absolutely. A specialist employment law solicitor can ensure your clauses are valid and defendable if challenged.
