A restrictive covenant is a term in a contract that prevents you from doing something after your employment has ended such as contacting the customers of your previous employer. Such covenants may be unenforceable unless they go no further than is reasonable to protect a legitimate business interest of the employer.

However, many covenants that are properly drawn up, and are designed to protect the employer’s business after the departure of a key member of staff, can be enforced.

Typical covenants will be found within the contract of employment and will try and restrict an employee’s activities after the employment has ended. They will seek to prevent the employee from competing with the employer or from poaching customers or other staff members.

Restrictive covenants are widely used in the finance and recruitment sectors, for sales teams and anyone else who has contacts with key customers, but they can be used in most situations and are becoming a standard feature of employment contracts.

An employer who wishes to rely upon restrictive covenants must ensure that they are carefully drafted and introduced in the correct way, so that they can be enforced if necessary.

Example:
George runs a business selling parts to car dealers. Michael, his sales manager, resigns to set up his own business. George discovers that he is trying to take over George’s contacts with car dealers and persuade them to purchase the products from his new company. However this is contrary to the restrictive covenants contained in Michael’s contract of employment which he signed when he commenced employment with George. George gets his solicitor to write to Michael threatening him with an injunction if he does not stop contacting George’s customers. Michael agrees not to contact the car dealers for a period of three months, the length of the restriction period.

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Updates: For employers: Contracts and incentives |
Tagged with: Contracts of employment |

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