Case study - drafting restrictions for employer client

We are frequently approached on the subject of restrictive covenants by businesses of all sizes, from micro-businesses and owner-managed enterprises to listed companies.

In 1 recent instruction, we advised a leading consumer goods company on the best ways to contractually protect themselves against former employees damaging their business.

The client objectives and underlying position

Many employment contracts contain post employment restrictions. Restrictions may seek to prevent reaching out to clients or customers, suppliers and other employees and/or a general prohibition on competing with the employer for a defined time period or in a defined area. Clients will typically and understandably want covenants to be as tough and wide ranging as possible

The starting point is always that post employment restrictions must be necessary to protect the employer’s legitimate business interests. The problem is that if covenants are considered excessive or a restraint on trade they may not be full or even partially enforceable if disputed, so the challenge is what's proportionate in each case and where can the line be drawn?

Support we provided to our client

In this case :-

• we redrafted restrictive covenants

• we provided bespoke clauses for 3 senior executives, which were slightly different from new restrictive covenants which were drafted for those in the sales function. There were less than five more junior staff who did not have access to confidential information and were not customer facing. Their employment contracted included highly restrictive covenants, but there was no reason for this so we removed the restrictions.

• we advised our client (and drafted clauses accordingly) about how long the “lock out” period, or “restricted area” needed to be. A period of 5 years, for instance, would usually be unenforceable.

• we strongly recommended that the employee about to sign restrictions should be invited to seek their own legal advice on the terms (at their own expense), and make a record of that. A Court would look more favourably upon an employer who was seen to be giving an employee time to take their own advice on the clauses.

Contact us

If you are in a business where confidential information is important, and/or you feel that sales staff might be tempted to leave, go to a competitor and attempt to poach your clients or staff, it would be a good idea to have your covenants reviewed. Taylor Rose has an excellent history of providing sound commercial advice to businesses in just that situation.