Restrictive covenants remain an effective tool by which an employer can prevent a former employee from making use of confidential information (such as technical data, know-how and customer contacts) they acquired during the course of their employment for the benefit of a new employer or a business of their own.
In recent cases the courts have shown a greater willingness to apply restrictive covenants to employees. However, in the vast majority of cases an organisation looking to rely on restrictive covenants in an employee’s contract will wish to do so without having to go to court to enforce those restrictions. I set out below some food for thought on how organisations can most effectively strengthen their position when looking to rely on restrictive covenants.
As a brief recap, post-termination restrictive covenants are generally viewed by courts as void for being in restraint of trade and contrary to public policy. As a result, a court will not agree to enforce such covenants unless the employer can show that it has a legitimate proprietary interest which it is appropriate to protect and that the protection being sought is no more than is reasonable, having regard to the interests of the parties and the public interest. The burden is therefore on the employer looking to rely on the restrictive covenant to show that the restraint in question is reasonable. In other words, that it is genuinely necessary to protect its business interests. The courts will in determining the question of reasonableness consider:
- the activities being restricted;
- the period of the restriction; and
- the geographical extent of their application.
If the court comes to the view that the restrictions have been drawn too widely it will declare them as void and unenforceable. The greater the restriction, the greater the protection to the business, but at the same time the higher the burden on it in proving that it is a reasonable restriction in the circumstances. Non-competition covenants are most difficult to enforce, followed by non-dealing covenants and non-solicitation covenants.
There have been a number of recent cases where restrictive covenants for a 12 month period have been upheld by the courts, leaving some commentators to suggest that such a period of restriction can now be relied on as a default position by employers in employment contracts. However, a close examination of these cases reveals that they have tended to involve very senior people within the organisation with access to particularly sensitive confidential information the misappropriation of which could have a significant detrimental impact on the organisation. In practice, most attempts to rely on a restrictive covenant involve employees at a less senior level and in the absence of any concrete evidence to show that their post-employment activities are likely to be damaging to the business.
You are therefore likely to be put in a stronger position when wanting to rely on a post-employment restrictive covenant (particularly if it is a non-competition or non-dealing restriction) you limit the period of protection to no more than six months. This is because:
- a six month period, especially where there have also been clear specification as to activities and the geographical area the restriction covers, is more likely to be enforceable;
- as a result, the restriction is likely to act as a stronger deterrent to the employee to acting in breach of it;
- in turn, you are more likely to be able to rely on the restrictive covenant by threatening to take legal action to enforce it without actually having to do so;
- in practice, and when considered objectively, a six month period tends to (other than with the most senior members of staff or where the confidential information has a particularly long ‘shelf life’) provide the protection that is required by the business.