Restrictive covenants have long been a key tool for businesses aiming to protect their confidential information, client relationships, and workforce stability. Restrictive clauses are commonly included in employment contracts with the intent of preventing employees from engaging in activities that could harm their former employer after leaving a company. However, restrictive covenants must be carefully drafted to be enforceable; the drafting should strike a balance between protecting legitimate business interests and not unfairly restricting an individual’s ability to work.

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This article explores the purpose, enforceability, types, risks, and best practices surrounding restrictive covenants.

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Understanding Restrictive Covenants

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Restrictive covenants are contractual clauses that impose limitations on an employee’s actions after termination of employment, however so caused. Common types include:

1. Non-Competition Clauses: Prevent an ex-employee from working for a competitor within a specified geographic area and time frame.
2. Non-Solicitation Clauses: Restrict an ex-employee from approaching clients, customers, or suppliers of their former employer.
3. Non-Dealing Clauses: Prohibit an ex-employee from engaging with former clients/customers, regardless of who initiates contact.
4. Non-Poaching Clauses: Prevent ex-employees from recruiting former colleagues to join a new employer.
5. Confidentiality Clauses: Restrict employees from disclosing or using proprietary business information after leaving employment.
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Employers often include these clauses in contracts for senior employees or those with access to sensitive business information (although we frequently see them included in standard contracts of employment—see below). Having such provisions in place from the outset of the employment relationship may deter employees from joining competitors and send a strong message about the risk of legal consequences in the event of a breach.
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Enforceability of Restrictive Covenants

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Under UK employment law, restrictive covenants are presumed void as an unlawful restraint of trade unless they are proven necessary to protect legitimate business interests. Courts will enforce such clauses only if they are:

• Designed to protect legitimate business interests – These may include trade secrets, client relationships, or workforce stability.
• Reasonable in scope, duration, and geographic reach – Restrictions should not extend beyond what is necessary to protect the business, with courts typically viewing post-termination restrictions beyond 6 months (or sometimes 12 months for senior employees) as difficult to justify.

Employers should restrictive clauses are carefully tailored to an employee’s specific role, access to confidential information, level of seniority and influence.
Risks of Overly Broad Restrictions

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Employers need to be cautious when drafting restrictive covenants to avoid:

• Legal Challenges: If a covenant is deemed too broad, courts may strike it down entirely or modify it to a reasonable scope.
• Negative Employee Relations: Overly restrictive policies can lead to distrust, dissatisfaction, and reduced morale among employees.
• Deterring Top Talent: Skilled employees may be discouraged from joining a company due to fears of future career limitations.
• Costly Litigation: Enforcing restrictive covenants can involve significant legal expenses, often outweighing the benefits.
• Legislative Changes: The UK government is currently considering capping post-termination restrictions at three months under the new Employment Rights Bill. If implemented, including lengthy restrictions in employment contracts would be automatically unlawful and unenforceable.
• Practical Challenges: Employees often ignore restrictive covenants, knowing that enforcement can be difficult, costly, and time-consuming for employers. Many move to competitors regardless, and it can be challenging to gather sufficient evidence to prove a breach. Employers should be aware of these realities and consider alternative strategies to retain key staff and protect their business interests.
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The Role of Garden Leave
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To enhance the effectiveness of restrictive covenants, employers can consider garden leave provisions, particularly for senior employees. These clauses allow an employer to require an employee to stay away from work during their notice period while continuing to receive their salary and benefits. This strategy:

• Prevents the employee from immediately joining a competitor.
• Ensures that confidential information becomes outdated before the employee starts a new role.
• Allows a successor to build client relationships in the interim.
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However, to enforce garden leave, an express clause must be included in the contract, and its duration must be reasonable. Courts may not uphold extended garden leave periods, particularly if they are excessive in length.
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Remedies for Breach of Restrictive Covenants

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If an ex-employee breaches a restrictive covenant, employers may seek legal remedies, including:

• Legal Undertaking: Employers may require an ex-employee to sign a legal undertaking before or after departure, particularly if they become aware of a breach after termination. A legal undertaking is a formal, legally binding promise given by an individual or entity to do or refrain from doing a specific action. Courts are more likely to grant injunctions or damages when a signed undertaking is breached.
• Injunctions: Court orders preventing the employee from continuing the breach.
• Damages: Compensation for financial losses caused by the breach, often based on lost profits.
• Action Against Competitors: If a new employer induced the breach, legal action may be taken against them for unlawful interference.
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Team Moves

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In cases of team moves, where multiple employees leave to join a competitor, employers must act swiftly to protect their business interests. Proactively monitor for warning signs, such as multiple resignations in quick succession, unusual client interactions, or sudden spikes in data access. Leverage IT monitoring to detect suspicious activity, such as downloading client lists or forwarding sensitive emails. Conduct exit interviews to assess employees' intentions and gather intelligence. If there is evidence of a coordinated departure, place key employees on garden leave to mitigate competitive risks. Additionally, require legal undertakings from departing employees to reinforce compliance with their post-termination obligations.
Courts have increasingly upheld post-termination restrictions to prevent businesses from being undermined by large-scale employee departures.
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Best Practices for Employers

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To ensure restrictive covenants are both enforceable and effective, employers should:

• Tailor Clauses to Specific Roles: Avoid generic restrictions; clauses should be relevant to an employee’s senior level of access to sensitive information, and influence over customers and clients.
• Keep Restrictions Proportionate: Ensure geographic and time limitations are justifiable.
• Use Garden Leave Effectively: This can provide an additional safeguard without relying solely on restrictive covenants.
• Utilise Intellectual Property Protection: Patents, copyrights, and trade secret laws can offer additional legal protection against unfair competition.
• Require a Legal Undertaking on Exit: Upon departure, ask employees to sign a legal undertaking affirming their compliance with post-termination restrictions. This reinforces their commitment and provides a legal basis for enforcement if a breach occurs.
• Invest in Retention Strategies: Competitive salaries, career growth, and a positive work culture reduce the likelihood of employees seeking opportunities elsewhere.

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Restrictive covenants are a vital safeguard for protecting business interests, however they are also often challenged or ignored by employees. Enforceability hinges not only on precise drafting and proportionality but also on proactive risk management. Relying solely on legal enforcement can be costly, time-consuming, and uncertain, making it essential for employers to adopt preventative strategies alongside contractual protections.

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