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Telephone: 0131 336 1619

Free EnquiryRestrictive Covenants In Employment Contracts

Many people have heard of the term 'Restricted Covenant' but may not understand what it actually means and how it relates to them. This article is designed to explore the role of restrictive covenants in employment contracts and to explain the implications of restrictive covenants.

What is a Restrictive Covenant?

A restrictive covenant is a term in your contract of employment which will prevent you from doing certain things after you leave your present role. They are inserted into contracts to safe guard the interests of your employer when you leave them.

Types of Restrictive Covenant

There are various types of restrictive covenants including:-

  • Non compete covenants (these set out to prevent you from competing in the specialised area of business of your employer and may be for a set period of time and within an accepted geographical area).
  • Non solicitation covenants (these will prevent you from attempting to take work from clients of your former employer).
  • Non poaching of employees (this is more explanatory and is designed to stop you taking employees of your former employer to your new place of work).
  • Restrictions on the use of confidential information (this will prevent you from using any confidential information obtained during the course of your employment after you have left).

Restrictive covenants, as you can see from the list above, can have severe restrictions on action that you can take once you leave your employer. It is therefore vital that you understand the nature of restrictive covenants before signing any employment contract.

Are Restrictive Covenants enforceable?

This question very much depends on the extent of the restrictive covenant. It must be reasonable and necessary to protect your employer's business interests. If your employer tries to make the covenant too broad (i.e. for too longer period of time or for too great a geographic area) it may well not be enforceable.

The enforceability of restrictive covenant will depend on the breadth of the restrictive covenant, but also on the position of the employee. For instance, a National Chairman or Managing Director of a company may well be prevented from working for any other competitor for a period of twelve months across the whole of Scotland, England or Wales, whereas this would be an unreasonable and unenforceable covenant for a local plumber.

Covenants may also be unenforceable if an employer fails to follow correct disciplinary or grievance procedures and terminates an employment contract. In this case, the covenants will also be unenforceable.

Summary

Restrictive covenants can have draconian impacts for employees and therefore should be carefully considered before an employment contract is signed. Every case is judged on its own merits and it is, therefore, important that you obtain expert legal advice.

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