Restrictive Covenants – protecting your business from your ex-employees
It has been the news that has shocked the nation, with many still reeling from the aftermath of the break-up of our favourite British Baking Team.
Mr Hollywood is set to join forces with Channel 4 and rumours are abound that Mary, Mel and Sue will start a rival baking show on the BBC. This begs the question, would you as an employer want your ex-employees to be able to compete so easily? If not, have you imposed valid restrictive covenants to seek to prevent this?
Many employers seek to protect their businesses by inserting “restrictive covenants” into contracts of their employees. These covenants usually seek to limit the employee’s ability to work for a competitor, solicit the employer’s customers, clients or even their staff for a set period following the termination of their employment.
Whilst we can only speculate as to whether any such protection was obtained by the producers of our favourite baking show, what as an employer must you consider when seeking to draft a valid restrictive covenant?
1) What are you trying to protect?
In general terms post termination restrictive covenants are void as a restraint of trade. However, a legitimate covenant may be valid if it protects a legitimate business interest.
2) What is reasonably necessary to afford this protection?
Whilst restrictive covenants are usually inserted into an employment contract, which an employee may agree to, this does not mean the restriction is de facto valid. Any restriction wider than what is reasonably necessary to protect the legitimate business interest will likely be unenforceable. In this regard the period for which the restriction operates is a key factor, whilst restrictions up to 12 months may be valid for senior employees; you must be able to justify this, as an employee may seek to argue anything over 6 months is excessive.
3) What is the employee’s role?
When seeking to justify what is reasonably necessary you should consider the employee’s position, for example broader restrictions may well be enforceable for a senior sales manager but not for an administration assistant. Employers must therefore be wary of the “one size fits all” employment contract and ensure any restrictive covenants are considered on an individual basis.
If challenged, the court will consider whether the restriction was valid at the time entered into. It is no good inserting lengthy covenants into a new junior employee’s contract in the thought they may develop into a role where they are applicable. Covenants must be reasonable from the start. Should the employee’s role change a new contract with new restrictions could be entered into.
For information on varying the terms of a contract of employment please see our fact sheet.
Whilst the future of the Great British Bake Off and its stars may hang in the balance, there is no need for your company’s protection to do so as well. Well drafted reasonable restrictive covenants that take account of the above matters can protect your legitimate business interests.
Should you require any advice or assistance in relation to these matters or any other employment queries then please do not hesitate to contact us.