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Restrictive Covenants - The Business Pre-Nup?

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By Helen Lyne, Associate Solicitor in Litigation

Almost all employment contracts contain post termination restrictive covenants, or at least they should. These are the clauses which restrict an individual’s right to conduct certain activities after the employment relationship has come to an end and are a critical tool to every business. They often receive something a negative following, with a view that enforcement is in bad taste and ill feeling. What seems to follow with this is an under-investment in careful drafting which underpins the value in such provisions.

Now you may have two questions- 1) why is someone engaged in professional services, and therefore subject to these very restrictions,  a champion of such clauses and 2) why is solicitor specialising in commercial disputes so enthusiastic about what primarily is an area of employment law?

Well the answer is simple. They provide insurance and there is an ever increasing need, with substantial movement across most professional sectors, to cash in on this insurance and as a result, litigation in this field is currently at a peak.  

An employer or business is faced with an employee or officer leaving its business is often faced with a difficult position as to how to protect the business. The reality is however is that employees and staff generally are the biggest asset to any business and have access to, or are involved in creating, highly sensitive and confidential information. It is that knowledge that puts business at risk if that individual leaves employment to work elsewhere in competition or set up alone. 

A carefully drafted Post Termination Restrictive Covenant can protect a business’ intellectual property rights, customer and client information, accounting information and business plans. There is however a huge amount of potential to challenge such provisions therefore like any insurance policy, it is important to ensure that the cover sought is adequate to protect a legitimate business interest.

The purpose of imposing these post termination restrictions is to prevent any exiting employee or officer from taking advantage of any information which they were privy to during their employment or office with a view to preventing financial damage or loss to the employee business should the individual move to a rival firm or seek to set up on their own.  Certain industries have seen a rise in employees exploiting information obtained from a previous role. Whether ignorance or naivety, this can be catastrophic, particularly the more senior the role held by the individual concerned. 

Robust terms can lend to a less adversarial enforcement regime. Ultimately, however, it is up to the civil courts to carry these terms into effect. Whilst sometimes warranted, this can be an expensive and painstaking process. The injunction process in particular is a complicated one and not one worth getting wrong as it carries particular risk. It is therefore important to seek specialist objective advice as to all of the options available when posed with this predicament. 

If you are concerned about an employee or officer misusing confidential or sensitive information or the intentions of an exiting employer or officer following the termination of their role then please get in touch with our Litigation Team for a comprehensive appraisal of your circumstances.  Otherwise, if you are keen to get your house in order and would like to review your contract terms, our Employment Team would be more than happy to assist. 
 

Disclaimer: The information contained in this article is for general information only and made available for educational purposes only.  It is for a general understanding of the law, not to provide specific legal advice.  This article should not be used as a substitute for competent legal advice from a regulated professional.  You should seek appropriate legal advice for your own situation.