Restrictive Covenants (employers / businesses)
What is a restrictive covenant or post-termination restriction?
It is a clause in an agreement which prevents an employee or other individual from competing with and harming your organisation, generally after the employment or other relationship has ended.
What is the purpose of a Restrictive Covenant?
The purpose is to help the business or profession protect its “legitimate trade interests” which are generally:
- trade secrets or confidential information which are protectable by a non-compete clause
- trade connections which are covered by a non-solicitation provision; and
- the skills of its workforce which are protectable by a non-poaching clause
What's the problem?
A restrictive covenant is void unless the restriction is in the interests of the parties, in the public interest and reasonable. To be reasonable, it cannot be longer in time nor wider in scope than is necessary.
It is for the organisation trying to enforce the covenant to prove that it was reasonable when it was entered into. Businesses change over time, employees are promoted and, by definition, senior executives acquire a lot of very sensitive information.
Will any clause do?
No. Properly drafted provisions are crucial if they are to be enforceable.
Is there anything else?
Yes, very often nowadays, the organisation must think about the impact of any garden leave and confidentiality provisions.
What’s the solution?
Make sure that you protect your business interests in a meaningful way and review the provisions from time to time to ensure that they remain pertinent and enforceable.
Contact Roberta to find out how to protect your organisation.