Restrictive Covenants: Employer's Guide
Using post-termination restrictive covenants. Non-compete, non-solicitation, non-dealing clauses - drafting, enforceability, and practical guidance.
Restrictive covenants protect your business when employees leave. Getting them right requires understanding what courts will enforce.
What Are Restrictive Covenants?
Post-termination restrictions that limit former employees from:
- Working for competitors
- Soliciting your clients
- Dealing with your clients
- Poaching your staff
Key principle: They're void and unenforceable unless protecting a legitimate business interest and going no further than reasonably necessary.
Types of Restrictive Covenants
Non-Compete (Non-Competition)
Prevents working for competitors in any capacity.
Example:
"You shall not, for 6 months after termination, be employed by, engaged by, or provide services to any business that competes with the Company's [specified] business in [geographic area]."
Most restrictive: Hardest to enforce.
Non-Solicitation
Prevents actively seeking out your clients.
Example:
"You shall not, for 12 months after termination, solicit or endeavour to solicit business from any person who was a client of the Company during the 12 months prior to termination and with whom you had material dealings."
More likely enforceable: Targets specific harm.
Non-Dealing
Prevents doing business with your clients, even if client approaches them.
Example:
"You shall not, for 12 months after termination, deal with or accept business from any person who was a client of the Company during the 12 months prior to termination and with whom you had material dealings."
Wider than non-solicitation: But often justified.
Non-Poaching (Anti-Enticement)
Prevents recruiting your staff.
Example:
"You shall not, for 6 months after termination, solicit or entice away any senior employee who reported to you or with whom you worked closely during the 12 months prior to termination."
Protects workforce stability: Usually enforceable if limited.
Legitimate Business Interests
What Courts Recognise
-
Trade secrets and confidential information
- Technical know-how
- Business strategies
- Pricing information
-
Client connections
- Personal relationships with clients
- Influence over client decisions
- Access to client information
-
Workforce stability
- Protecting key team members
- Preventing "team moves"
What Won't Justify Covenants
- Mere competition
- General skills and knowledge
- Preventing employee from earning a living
- Punishing the employee
The Reasonableness Test
Courts Ask
- Is there a legitimate interest to protect?
- Is this restriction reasonably necessary to protect it?
- Is it no wider than necessary in:
- Duration
- Geographic scope
- Activities covered
- People/clients covered
What Courts Consider
- Seniority of employee
- Access to confidential information
- Client contact level
- Nature of business
- Industry practice
- What employee actually did
Drafting Effective Covenants
Duration
| Employee Level | Non-Compete | Non-Solicitation |
|---|---|---|
| Junior | Usually not appropriate | 3-6 months |
| Middle management | 3-6 months | 6-12 months |
| Senior/Director | 6-12 months | 12 months |
| Very senior/C-suite | Up to 12 months | 12-18 months |
Note: These are guidelines only. Courts assess each case individually.
Geographic Scope
Must match where business operates:
- Local business: Local restriction
- National business: National restriction
- International: Where employee actually worked
Too wide kills enforceability.
Who Is Restricted
Be specific about:
- Which competitors (by type of business)
- Which clients (those employee dealt with)
- Which employees (those employee worked with)
Cast the net appropriately.
Sample Comprehensive Clause
Post-Termination Restrictions
Following termination of your employment (however arising), you shall not:
(a) Non-compete: For [X] months, be engaged in any capacity by a Competing Business in [area]. "Competing Business" means a business providing [specific services/products] similar to those provided by the Company.
(b) Non-solicitation of clients: For [X] months, solicit, canvas, or approach any Restricted Client with a view to providing goods or services similar to those provided by the Company.
(c) Non-dealing: For [X] months, accept or perform work for any Restricted Client where such work is similar to that provided by the Company.
(d) Non-poaching: For [X] months, solicit or entice away any Restricted Employee.
Definitions:
- "Restricted Client" means any client with whom you had material dealings in the 12 months before termination.
- "Restricted Employee" means any employee who reported to you or with whom you worked closely in the 12 months before termination.
Each restriction is separate and severable. If any is unenforceable, the others remain in force.
Enforcing Covenants
Early Action
If you discover a breach:
- Act immediately - Delay weakens your case
- Send cease and desist letter
- Gather evidence
- Consider injunction
Injunctions
To get an injunction, you typically need:
- Seriously arguable case on covenant enforceability
- Damages wouldn't be adequate remedy
- Balance of convenience favours injunction
- Undertaking in damages
Speed is essential: Courts expect quick action.
What Courts Can Order
- Injunction preventing breach
- Springboard relief (preventing unfair advantage)
- Damages for loss caused
- Account of profits
Practical Reality
Most cases settle because:
- Litigation is expensive
- Outcome uncertain
- Both parties want to move on
- Compromise often sensible
When Covenants Are Unenforceable
Common Problems
-
Too wide geographically
- Restriction covers areas where business doesn't operate
-
Too long in duration
- Period exceeds what's needed to protect interest
-
Activities too broad
- Prevents working in roles unrelated to sensitive work
-
Not tailored to employee
- Same covenants for everyone regardless of role
-
No legitimate interest
- Employee didn't have relevant access/relationships
Severance
Courts may:
- Strike out unenforceable parts
- Leave enforceable parts standing
- But won't rewrite to make reasonable
Draft with severability clauses.
Relationship with Garden Leave
How They Work Together
- Garden leave: Keeps employee bound during notice
- Covenants: Restrict activities after termination
Court's Approach
Courts may reduce covenant period by garden leave served:
- Total restriction considered
- 6-month garden leave + 12-month covenant may = 6-month covenant
Planning for This
- Factor garden leave into covenant duration
- Specify covenants run from termination
- Consider combined total restriction
Considerations for Different Departures
Resignation
Covenants apply as drafted.
Dismissal
Still apply if:
- Employee breached contract (misconduct dismissal)
- Dismissal was lawful
May not apply if:
- You breached contract first
- Repudiatory breach terminates contract
Redundancy
Covenants generally still apply, but:
- Consider whether fair to enforce
- May affect negotiation
- Court may factor in circumstances
Settlement Agreement
Often negotiate:
- Reduced covenant periods
- Release from some restrictions
- Payment for extended restrictions
Common Mistakes
1. One-Size-Fits-All
Using identical covenants for all employees.
Problem: What's reasonable for a director isn't for a junior.
2. Never Reviewing
Covenants drafted at hire never updated.
Problem: Role may have changed, making covenants inappropriate or insufficient.
3. Unrealistic Duration
Excessively long periods.
Problem: Whole covenant becomes unenforceable.
4. Not Defining Terms
Vague language like "competitor" without definition.
Problem: Uncertain scope may be unenforceable.
5. Ignoring Breaches
Not acting on known breaches.
Problem: Weakens future enforcement, may lose rights.
Checklist
Drafting Covenants
- Identify legitimate interests to protect
- Tailor to employee's role and access
- Reasonable duration
- Appropriate geographic scope
- Clear definitions
- Severability clause
- Separate covenants for each restriction
At Termination
- Remind employee of covenants
- Confirm in termination letter
- Note garden leave period served
- Provide copy of relevant contract terms
Enforcement
- Act promptly on suspected breach
- Gather evidence quickly
- Send cease and desist letter
- Consider injunction urgently
- Assess litigation/settlement options
Ongoing
- Review covenants on promotion/role change
- Keep contracts current
- Monitor departures to competitors
- Document client relationships
Related answers
Employment Contract Requirements UK
What must be included in a UK employment contract? Learn the legal requirements for written statements of particulars and what happens if you get it wrong.
Garden Leave: Employer's Guide
Using garden leave during notice periods. When to use it, enforceability, employee rights, and drafting effective clauses.
Settlement Agreements: Employer's Guide
Using settlement agreements to end employment cleanly. When to use them, what to include, legal requirements, and negotiation tips.
Frequently Asked Questions
- What are restrictive covenants?
- Restrictive covenants are contractual clauses that limit what an employee can do after leaving your employment - typically restrictions on working for competitors, soliciting clients, or poaching staff. They must protect legitimate business interests and be reasonable to be enforceable.
- Are restrictive covenants enforceable?
- Only if they protect a legitimate business interest (trade secrets, client connections, workforce stability) and go no further than reasonably necessary. Courts won't enforce covenants that are too wide in scope, duration, or geography.
- How long can restrictive covenants last?
- There's no fixed maximum, but courts assess reasonableness. Non-compete clauses rarely exceed 12 months for most roles. Non-solicitation may be longer. The more senior the employee, the longer the period courts may accept as reasonable.