Restrictive covenants – popular misconceptions

22 Jan 2013

There are two schools of thought regarding restrictive covenants (clauses preventing ex-employees competing with their former employer) that need rectifying:

The first is that restrictive covenants are never enforceable – not true.

The second is that the greater the protection provided by the covenant, the better it is for the employer – not true.

The truth is that employers can include, in a contract of employment made with an employee, covenants necessary to protect their legitimate business interests – no more and no less.

Not all employees can cause damage to a former employer when they leave and work for a competitor.  For such employees, covenants are inappropriate.

Some employees (e.g. a sales manager with "relationships") can cause massive damage if they are allowed to compete freely with an ex-employer.

Taking professional advice and drafting contracts for the former type of employee (i.e. those who would cause no damage) may be a waste of money.  In relation to the latter, it can be a very wise investment.  Covenants should always be appropriately drafted and specific to the damage a particular employee can cause.  The tighter and more specific the protection provided to the employer, linked to the damage that can be caused, the more likely there is of a covenant being enforced by way of an injunction and damages in High Court proceedings.