POSTED: May 18 2023
Restrictive Covenants

Restrictive Covenants

Restrictive covenants have become a hot topic, especially since the Government introduced measures at the back-end of last year on reforming post-termination non-compete clauses in contracts of employment.

Since December 2022, these changes now prohibit the use of non-compete clauses for low paid workers. This bans the use of such exclusivity restrictions on workers earning on or below the lower earnings limit and has benefited around 1.5 million workers who are now free to work two more jobs if desired.

Where does this leave employers?

Restrictive covenants, including, non-compete, non-solicit of employees, non-solicit of clients, non-deal of clients and non-engagement of employees, are often included in employment contracts to prevent or restrict employees from working for others or having personal outside interests which conflict. The intention behind such provisions is usually to protect the employer’s legitimate business interests, such as confidential information, customer and supplier relationships and the stability of the workforce.

Workers with multiple jobs may have access to confidential information, such as volume discounts, trading practices and upcoming promotions, and might seek to use such information to their own advantage or from one employer to the detriment of another. They may be aware of an employer’s customers and actively solicit those customers for the benefit of the other employer or a competitor.  Similarly, an employee can talk-up ‘work’ practices at one employer, enticing and encouraging workers to leave their current employer.  Likewise, a competitor may directly seek to ‘poach’ workers by knowingly being able to offer more favourable terms through this ‘insider’ information. So, it goes without saying that understandably, employers would want to prevent such practices.

From 5 December 2022, under the exclusivity terms for workers legislation, employers can no longer enforce non-compete clauses against low-income workers. This effectively extends the ban on exclusivity which already applied, since 2015, to workers on zero hours contracts.  The new regulations make any contractual term unenforceable if it prohibits a low-income worker from working for or providing services to another employer or only permits it with the current employer’s consent. This means the employer can no longer seek an injunction or damages for breach of contract if such a worker is in breach.

Reasonableness and enforcement

When issuing a contract of employment, it is important to consider the different types of restrictive covenants, how long they should be enforced for, and other factors such as location and the job role. Good practice recommends restrictions of usually between 3 to 6 months in duration and it is recognised restrictive covenants should only be used for specific roles, i.e. more senior positions and/or technical roles, rather than a blanket approach for all positions, this ensures the use is justifiable and reasonable.  For example, it would likely be unreasonable and therefore unenforceable to place a 20-mile restriction on an employee working for a competitor in central London as this would drastically limit their ability to work.

At advo, we also recommend, where appropriate, to name specific competitors within the restrictive covenant.  It would be unreasonable to have an open-ended list of all similar companies here as this again could limit the ability for the employee to work but if there are known direct competitors this may give legitimate grounds for such a restriction, and therefore be more likely to be enforceable if it was ever needed to be called upon.

Always consider what is reasonable in terms of the restriction and length when drafting such a clause.

For all new offers of employment, advo recommends when drafting a contract of employment any restrictive clauses are reviewed to ensure the contents remain suitable and fit for purpose.  If you require assistance in drafting such a clause or would like more information please do get in touch.

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