The Unpredicted Implication of Economic Recovery
As we turn a corner and continue to attempt to put the economic crisis of the noughties behind us, the UK's workers are becoming more mobile. Companies are, once again, seeking to recruit as they not only expand, thus creating new vacancies, but also seek to fill the vacancies created when redundancies and cost-savings were made during the credit crisis starting around 2008. One result of this is that here at EMW, we have found that we have been advising on restrictive covenants - a lot!
With a buoyant market, comes the need to protect not only your work-force but also the confidential information that these employees possess and it is for that reason that most employment contracts and service agreements, and certainly those of senior employees, will include appropriately drafted restrictive covenants aimed at protecting a company on the exit of an employee.
A restrictive covenant is a negative covenant that restricts the way in which a party can act, for example the way in which land may be used or what an employee can do. We see them across all areas of our work, from the Real Estate team to the corporate team and everything in between. However, such restrictions are largely used in employment contracts to protect the employer's business by restricting the activities of an employee, generally after the employment has ended.
Unfortunately for employers, the starting point when it comes to enforcing a restrictive covenant is that covenants restricting the freedom of an ex-employee are unenforceable as they constitute a restraint of trade.
However, such restrictive covenants will be upheld if the ex-employer can satisfy the Court or Tribunal that they are:
(i) designed to protect the employer's legitimate business interests; and
(ii) extend no further than is reasonably necessary to protect those interests.
Such legitimate interests include the employer's trade connections or goodwill, the employer's business secrets or confidential information and the stability of the employer's work force.
Generally speaking, non-competition covenants which prevent an employee from working for a competitor at all will only be justifiable if necessary to protect confidential information or trade secrets and/or where a less extensive form of covenant such as a non-solicitation/non-dealing covenant would be difficult to police, i.e. to ensure in practice that it is obeyed.
Our employment team can assist you if you have employees who are exiting or have exited to work for a competitor in breach of their restrictive covenants. We can provide advice on the enforceability of the restrictions and help you to take immediate injunctive action to protect your business. We can also help you with drafting restrictive covenants.
For more information, speak to our employment team.