Our guest blogger, employment solicitor Philip Landau, explains why.
Are you thinking of moving jobs? If so, it is always a good idea to read your employment contract before you do so. Many contracts of employment will contain post-termination restrictions which may hamper where you can work, including what clients you can or cannot take with you.
Below is a summary of what you need to know.
What are restrictive covenants?
Restrictive Covenants are clauses in your contract that typically seek to prevent you from harming your employers business after you have left. They usually fall into the following categories:
- Non- Compete Clause – This seeks to prevent you from working for a competitor in a similar role to the one you previously held, and also prevents you from setting up a competing business
- Non-Solicitation Clause – This imposes a duty not to approach your ex-employer’s customers or prospective customers. Usually, this is with specific reference to those customers you had direct dealings with for the 12 month period prior to your termination date
- Non-Dealing Clause – This is more onerous than a non-solicitation clause in that it prevents you from dealing with your ex-employer’s customers whether you encourage them or not. So if they approach you, the restriction would bite in the same way as it would by you soliciting them
- Non-Poaching Clause – This aims to prevent you from taking key employees with you to your new employment or business
What is the usual period of time for restrictive covenants?
A typical period is 3 months after you have left employment, but for more senior employees, a period of 6 months is more common. In rare circumstances for very senior employees a 12 month period may be justified.
What if I introduce clients or customers to my new employer? Surely they belong to me and I can take them with me when I leave?
Not if your employer doesn’t agree and your contract of employment doesn’t provide for this. Your personal clients or customers will otherwise become integrated into your employer’s own client base and form part of your restrictive covenants when you leave.
Are restrictive covenants enforceable?
If they are properly drafted, then yes, but the clauses must not be more restrictive than is reasonably necessary to protect your employer’s business. If the clause is too wide, it is likely to be struck out as unenforceable. For example, if a clause seeks to restrict your dealing with “all clients”, this is likely to be too wide and therefore unenforceable. If the clause, however, only seeks to restrict those clients that you have had a “material” dealing with in the 12 months prior to your termination, then this is more likely to be upheld.
A further example is where your employer imposes a blanket ban on you working for a direct competitor, without any reference to the type of work that you will be doing for that employer. This is unlikely to be enforced by the courts because of the serious impact it will have to enable you to make a living.
It is for your employer to prove that the restrictive covenants are reasonable. What is reasonable will depend on the nature of your employers business and what they are looking to protect. A sales business, for example, that relies heavily on customer databases, pricing structures and contacts is more likely to have a business interest to protect from competitors in the same field than in a different industry sector. In these circumstances, the covenants could be held to be reasonable as long as they are for a duration that is no longer than necessary.
Will they still apply if I am made redundant?
Will my employer agree to a variation of the covenants if they become problematic for me? What if they don’t?
It is certainly worth asking. Some employers will be more flexible than others, and this will largely depend on the nature of the industry you are in and the likely detrimental effect on your employers business. In the recruitment industry, for example, you are unlikely to find your employer bending over backwards to allow you to take client contacts to your new employment. Any variation to your existing covenants should be agreed in writing, if possible, for your future protection.
If your employers do not agree a variation, which adversely impacts on your new job, you are best taking legal advice on the validity of the clauses. A badly drawn covenant, or one that seeks to unreasonably restrict you are unlikely to find favour with the courts. Practically, such employers are unlikely to insist on the covenants being enforced if a valid legal argument against them can be made at an early stage.
The information and any commentary on the law on this web site is provided free of charge for information purposes only. Every reasonable effort is made to make the information and commentary accurate and up to date, but no responsibility for its accuracy and correctness, or for any consequences of relying upon it, is assumed by either Morgan McKinley or Landau Law Solicitors. The information and commentary does not, and is not intended to, amount to legal advice to any person on a specific case or matter. You are strongly advised to obtain specific, personal advice from a solicitor about your case or matter and not to rely on the information or comments on this site.