Restrictive Covenants: How to Protect Your Business After an Employee Leaves

Your employees are one of your business’s greatest assets, but when they leave, they can sometimes become a risk.

Most employees have access to confidential business information, particularly those in senior positions. When they leave the business, their loyalties change, increasing the risk of valuable business information being misused or falling into the wrong hands.

In this article, our employment law solicitors explain how restrictive covenants can be used to protect your business when an employee leaves. We’ll explore what restrictive covenants (sometimes called post-termination restrictions) are and how you can use them effectively to safeguard your commercial interests.

What is a restrictive covenant in an employment contract?

A restrictive covenant is a clause that you include in employment contracts to limit what employees are allowed to do after their employment ends.

To be enforceable, restrictive covenants must be reasonable and designed to protect a legitimate business interest. They should not punish the employee or prevent them from earning a living. They are usually only in place for a certain, limited period (usually between 6 and 12 months) after the employee leaves and some types of restrictive covenant may apply only within a certain geographical location.

How can restrictive covenants protect your business?

Restrictive covenants can help to protect your business by preventing employees from taking certain actions after their employment ends.

When an employee leaves, particularly someone in a senior position, you may worry about them misusing sensitive company information, setting up in competition or joining a competitor, or taking clients, suppliers, or staff with them.

Including a restrictive covenant in their employment contract helps set clear boundaries on post-termination behaviour and reduce risk for your business.

What are the different types of restrictive covenants in the UK?

There are several different types of restrictive covenants; the most common ones are:

• A non-compete clause: Prevents the employee from working for a competitor or setting up in competition.
• A non-solicitation clause: Prevents the employee from contacting your business’s customers or suppliers in their new role.
• A non-dealing clause: Prevents the employee from having any dealings at all with your business’s customers or suppliers after they leave.
• A non-poaching clause: Prevents an ex-employee from poaching your staff.

How to use restrictive covenants

If they are necessary, restrictive covenants should be included when you draft an employee’s contract or may be added if an employee’s role changes during their employment, often if they are promoted.

Not every employee needs a restrictive covenant in their contract. They are most relevant for those in senior positions or customer-facing roles, although they can be useful for any employee with access to confidential company information.

If you do choose to include restrictive covenants within an employee’s contract, it should be tailored to their role and seniority, reviewed regularly, and updated as appropriate. The restrictions should also be communicated clearly to the employee before they sign the contract and highlighted again to them when they leave.

Are restrictive covenants enforceable in the UK?

A properly drafted, relevant, and proportionate restrictive covenant is legally binding. However, to be enforceable, it must be reasonable and designed to protect a legitimate business interest. It is, therefore, a good idea to get professional legal advice when drafting restrictive covenants to give the best chance of them being enforceable.

Tips to help ensure a restrictive covenant is enforceable

• Use clear, specific, and tailored wording – There is no one-size-fits-all when it comes to restrictive covenants. Make sure the wording and restrictions are tailored to the employee’s role and seniority.
• Review regularly – Regularly check that restrictive covenants are still reasonable and relevant, and always revisit and update them when an employee is promoted or their role changes.
• Ensure all relevant parties sign contracts – If the contract isn’t signed, it’s not enforceable so do ensure that they sign their contract of employment and you keep a copy.
• Make it simple, not excessive – Make sure the restrictions are reasonable. Avoid overly long or wide restrictions and ensure covenants are proportionate.
• Act quickly if you suspect a breach – Any delays can weaken your position and chances of enforcing the covenant. Seek specialist legal advice straight away.

Speak to Hibberts employment law solicitors about restrictive covenants

Whether you’re worried about a senior member of staff leaving and taking clients with them, or an employee setting up a competing business, well-drafted restrictive covenants can help to prevent problems arising and protect your business interests.

At Hibberts Solicitors, our team of employment law solicitors help businesses across Tarporley, Nantwich, Crewe, and wider Cheshire to draft enforceable restrictive covenants and take prompt legal action if a breach is suspected.

For confidential expert advice, contact our employment law solicitors by calling 01270 624 225 or submitting an enquiry online.