Restrictive Covenants

A restrictive covenant is a contractual clause restricting the post- employment activities of the employee for a limited period after the employment relationship ends in order to protect the employer’s legitimate business interests.

This is a difficult balance to achieve and so, unsurprisingly, post-employment restrictions are a particularly complex area of law and a rich source of litigation.

If restrictive covenants are deemed to be absolutely essential to an employer, legal advice should be sought in the drafting of relevant clauses. In deciding which employment contract to use, the employer must consider the relative importance of being able to maintain the restrictive covenant clauses against the flexibility offered by payments in lieu of notice (PILON). This conflict can be diluted by the incorporation of a ‘Garden Leave’ clause into the contract.

There are very limited duties implied by law after a contract of employment ends (i.e. trust and confidence and fidelity). If an employer wishes to impose restrictive covenant provisions and/or duties of confidentiality after employment comes to an end, express clauses are required.

Employers should be aware that restrictive covenants will only be upheld to the extent that they are reasonably required for the protection of the employer's legitimate business interests. If a restrictive covenant goes too far in limiting the employee’s post-employment activities, then it is likely to constitute restraint of trade and this will render the restrictions unenforceable.