Restrictive Covenants & Review of Employment Contract Terms

Much of how the relationship between an employee and their employer will operate is based on the terms of the employment contract. These terms set out the rights and obligations each party is bound by, such as salary, holiday entitlement and working conditions.

They also set out how the employment relationship can be brought to an end, such as the notice period and any post-termination restrictions. Negotiating these terms, or amending them to reflect changes to the relationship, is, therefore, an important process with important legal consequences.

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What are restrictive covenants in an employment contract?

Restrictive covenants are restrictions imposed on an employee for a set period after their employment has ended. They are aimed at protecting the legitimate business interests of the ex-employer and preventing damages from the former employee.

For example, a non-solicitation or non-dealing covenant may seek to prohibit a former employee from damaging the business’s relationships with its customers, clients and other trade connections.

Different types of restrictive covenants

  • Confidential information clause: Ex-employees are prevented from misusing or disclosing confidential information and trade secrets of the former employer.

  • Non-competition clause: Employees are prevented from joining a role at a competing business or their previous employer’s business. Non-compete clauses are commonly used in employment contracts as a more general way for the former employer to protect their own business, making sure such clauses as confidential information and non-poaching remain intact.

  • Non-solicitation clause: Employees are prevented from trying to take clients from their former employer with them to their new employer. Should only be applicable if the employee had a meaningful relationship during a certain period of time (usually the final 6-12 months of employment).

  • Non-dealing clause: Employees are prevented from working with clients of their former employer in a competing role. Should only be applicable if the employee had a meaningful relationship during a certain period of time (usually the final 6-12 months of employment).

  • Non-poaching clause: Employees are prevented from approaching former colleagues from their former business to join them at their new business. Should only be applicable if the employee had a meaningful relationship during a certain period of time (usually the final 6-12 months of employment)

  • Non-employment clause: Employees are prevented from recruiting employees from their ex-employer. Should only be applicable if the employee had a meaningful relationship during a certain period of time (usually the final 6-12 months of employment)

Are restrictive covenants enforceable?

Restrictive covenants will only be enforceable if they seek to protect a legitimate proprietary interest and are reasonable. Any post-termination restriction which doesn’t meet these two conditions will be void on the basis that it is in restraint of trade. Whether or not the covenant will be enforceable is therefore highly fact-specific: it depends on the interest the employer is looking to protect and whether or not the restraint imposed on the employee post-termination is reasonable.

This is a highly nuanced area of law that requires a deep understanding of the applicable case law and how it applies to the situation at hand. For assistance with the interpretation of restrictive covenants, including their potential enforceability, please contact us. We will provide comprehensive, practical advice, ensuring you’re fully informed of the legal consequences.

Are there any penalties for breaching restrictive covenants?

Breaching a covenant opens you up legal ramifications from your former employer. If they enforce these covenants, you are taken to court to dispute the claims held against you, and if found guilty of them, you can face financial damages.

In the event that you felt induced by your new employer into breaching the restrictive covenants, your former employer may sue your new employer.

At Cavendish Employment Law, our specialist lawyers have particular expertise in assisting employees with restrictive covenants.

Review of Employment Terms for Employees

Broadly speaking, there are three different types of terms that govern the relationship between an individual employee and their employer:

  • Statutory: These are found in legislation and often automatically entitle employees to certain rights, such as the right to not be discriminated against. In most (although not all) cases, it isn’t possible to contract out of statutory terms, and any attempt to do so is likely to be void under the law.

  • Implied: These terms are read into an employment contract either because they are necessary to make the contract work or because they reflect a custom or practice of the industry or business. These can form the subject of negotiation and/or variation.

  • Express: These are found in various documents, such as the contract of employment, a letter of appointment, policies, standard terms & conditions, collective agreements and/or company/staff handbooks. It is these terms that are most commonly the subject of negotiation and/or variation.

Whether proposed by the employee or employer,  any changes to the terms of employment must be agreed to by both. While it’s possible for an agreement to be made verbally, it’s best practice to ensure matters are put in writing and for the employer to provide written notification to the employee once an agreement has been reached.

Changes to employment terms are relatively common in the course of employment and usually occur by mutual consent, such as by virtue of a promotion or pay increase, but problems can arise if more controversial changes are sought, such as relocation or a reduction in hours. This can raise complex matters that have the potential to become the subject of a dispute if not handled appropriately.

For example, if an employer unilaterally imposes new employment terms without the employee’s agreement, the employee may be entitled to make a claim against their employer for breach of contract. However, if the employee continues to work under the new terms and doesn’t make it clear to the employer that they don’t accept them, it is highly likely that their adherence will be interpreted as consent to the new terms.

If you’re looking for expert advice on the terms of your employment, our specialist employment lawyers are ready to help. We will provide a comprehensive review so you are fully informed of both your own and your employer’s rights and obligations. We can also use our vast negotiating experience to help you get a better package while minimising the risk of disputes arising in the future. Please contact us for more information.

Contact Cavendish Employment Law Today

If you’re a high-level executive, senior employee or director seeking legal advice regarding your restrictive covenants, contact our specialist employment lawyers at 0207 965 7203 or submit an online enquiry form for confidential and expert advice.

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