Protecting your business can be challenging when an employee moves on, as concerns may arise around safeguarding your confidential information, client relationships and competitive advantage, JMW’s employment law experts can assist you in creating legally sound restrictive covenants that safeguard your business interests.

Drafting effective restrictive covenants requires careful consideration. Overly broad or vague restrictions may be deemed unenforceable by a court, leaving your business exposed. To be enforceable, these covenants must be tailored, precise and fair, balancing necessary limitations with the employee’s rights.

At JMW, our employment law team combines commercial understanding with extensive legal expertise to help businesses create robust employment contracts. Whether you need bespoke contracts for key hires or strategic advice on managing breaches of restrictive covenants, our partner-led team is here to provide high-quality support.

To discuss how JMW can help protect your business interests, contact us on 0345 872 6666 or use our online enquiry form.

What are Restrictive Covenants in Employment Contracts?

Restrictive covenants are clauses in employment contracts that impose limitations on employees during or after their employment. 

These covenants can prevent departing employees from misusing sensitive information, soliciting clients, or joining competitors in ways that could harm your business. With the right structure, restrictive covenants provide essential protection, ensuring that valuable insights and relationships remain assets for your company alone.

In UK employment law, restrictive covenants must strike a balance between the employer's business interests and the employee's right to earn a living.

Examples of Restrictive Covenants in Employment Contracts

There are several types of restrictive covenants in employment contracts, each tailored to protect specific aspects of the employer's business. Understanding each type and when they apply is key to creating contracts that are fair, clear and legally binding.

Each type of restrictive covenant in an employment contract serves a distinct purpose, and in some cases, employers may include multiple types within a single contract. The effectiveness and enforceability of these clauses depend on the employee’s job role, clear drafting, reasonable limitations, and a well-defined business interest that the clause seeks to protect.

In an employment contract, restrictive covenants typically fall into one or more of the following categories:

Non-Compete Clauses

A non-compete clause restricts a former employee from joining a competing business or starting their own business in direct competition with their former employer within a certain geographic area and for a specified period. This is particularly valuable when protecting trade secrets, valuable business contacts, and market-sensitive information. 

Non-compete clauses should be carefully drafted to avoid undue restraint, as overly broad clauses may be rendered unenforceable.

Non-Solicitation Clauses

Non-solicitation clauses prevent former employees from approaching or soliciting their former employer’s clients, customers, suppliers or employees. 

This type of restrictive covenant is often easier to enforce than a non-compete clause, as it protects client relationships and workforce stability without overly restricting the former employee's future employment options.

Non-Dealing Clauses

A non-dealing clause is one of the most robust forms of restrictive covenants, prohibiting a former employee from dealing with the employer’s clients, even if the client initiates contact. 

This clause is particularly useful for maintaining exclusive relationships with clients, especially those with a substantial personal connection to a senior employee. Non-dealing clauses must be reasonable in scope and duration to ensure enforceability.

Non-Poaching Clauses

Non-poaching clauses are designed to prevent a former employee from recruiting or encouraging current employees to join a competitor. This clause protects the business's workforce and stability, which is particularly important in industries where team dynamics and specialised skills are important.

The Challenges of Drafting Employment Contracts with Restrictive Covenants

Drafting employment contracts that include restrictive covenants involves several challenges. These covenants must not only protect the employer's business but also remain fair and reasonable in scope. Overly restrictive or vague covenants are unlikely to be enforceable, making it important to carefully consider several factors when drafting these clauses:

• Ensuring enforceability: Restrictive covenants must protect a legitimate business interest. This includes client relationships, confidential information, or trade secrets. UK courts will only enforce these covenants if they’re drafted to be reasonable and necessary for the protection of the employer’s legitimate business interests.
• Balancing rights and fairness: An employment contract must respect the employee's right to seek new employment. Restrictive covenants should allow the former employee to work in their field without creating excessive restrictions, as courts generally favour an individual's right to earn a livelihood.
• Customising restrictions to roles: Senior employees or those with substantial personal connections to clients might need stricter restrictive covenants than junior employees. Each role may require a different level of protection, with some roles necessitating multiple restrictive clauses to effectively safeguard the employer's business.
• Meeting legal standards: Each restrictive covenant must meet the standards set by employment law in the UK. This means that the clause must be clearly worded, reasonable in geographic scope and duration, and must not exceed what is necessary to protect legitimate business interests.
• Staying up to date with legal changes: Employment law evolves over time, impacting the enforceability and scope of restrictive covenants. Drafting a legally binding contract requires staying informed on recent case law and legislative changes that could affect the enforcement of these covenants.

By addressing these challenges head-on, employers can draft restrictive covenants that are both legally compliant and strategically effective. Working with expert employment lawyers can aid this process, ensuring that each restrictive covenant is appropriately tailored to the role and business needs.

How to Ensure Enforceable Restrictive Covenants in Employment Contracts

To make sure restrictive covenants in employment contracts are enforceable, employers should consider the following practices:

• Limit scope and duration: The scope of a restrictive covenant should not extend beyond what is necessary. For example, limiting a non-compete clause to specific competitors within a certain geographic area and time frame (often 3 to 6 months) could arguably be reasonable. Courts will assess whether a restriction is proportional to the employer’s need to protect their business interests and the industry they operate in.
• Define legitimate business interests clearly: Legitimate business interests include client relationships, trade secrets, confidential information, and the stability of the workforce. Without a clear definition, restrictive covenants may be deemed unreasonable, leaving the employer unprotected. Employers should ensure that these interests are well-documented within the employment contract.
• Tailor covenants to seniority and role: The more senior the employee and the greater their access to sensitive business information, the stricter the restrictive covenants can be. Senior employees often hold significant responsibility for client accounts, trade secrets or business strategies, justifying a higher level of protection. However, for roles with minimal exposure to sensitive information, lighter restrictions are typically sufficient.
• Review and update covenants regularly: As an employee's role or the business environment changes, so might the applicability of restrictive covenants. Regular contract reviews help ensure covenants remain relevant and enforceable.
• Ensure fair consideration: In some cases, changes to restrictive covenants may require the employer to provide consideration, such as a pay rise. This is particularly important when updating employment contracts for existing employees, as new restrictions imposed without adequate consideration may not be enforceable.

By following these steps, employers can create restrictive covenants that are enforceable, fair, and aligned with the company’s legitimate business interests.

Protecting Legitimate Business Interests with Restrictive Covenants

One of the main purposes of restrictive covenants in employment contracts is to protect legitimate business interests.

These interests vary depending on the business but generally include:

• Client relationships: If an employee builds a substantial personal connection with clients or customers, the employer has a legitimate interest in protecting these relationships. Restrictive covenants prevent former employees from leveraging these connections to the detriment of their former employer.
• Trade secrets and confidential information: Many businesses possess sensitive information that provides a competitive advantage, from proprietary technology to unique business processes. Restrictive covenants that protect trade secrets ensure that former employees cannot use this information in a new role or share it with competitors.
• Workforce stability: Restrictive covenants that prevent poaching or recruiting former colleagues support a stable, cohesive workforce, which is particularly valuable in industries where team dynamics play a big role. The departure of even one employee could disrupt workflow and morale, especially if it leads to further resignations.

Enforcing Restrictive Covenants

Enforcing restrictive covenants in employment contracts is critical to safeguarding your business’s assets and interests. 

Courts in the UK are prepared to uphold restrictive covenants, provided they meet certain criteria. Here’s how to ensure that these clauses are enforceable and practical steps if enforcement becomes necessary.

• Draft with precision: Vague or overly broad language in restrictive covenants can render them unenforceable. Courts look for clarity, proportionality and specific terms. For example, instead of broadly restricting an employee from working with any competitor, a precise non-compete clause should focus on direct competitors within a defined geographic scope and for a reasonable period. Similarly, a non-dealing clause should be specific about the clients it applies to, ideally those with whom the employee had a direct relationship.
• Utilise the “blue pencil” rule: UK courts may apply the “blue pencil” rule, whereby they can remove or “sever” unenforceable parts of a restrictive covenant without affecting the remainder of the clause. This rule means that while a court won’t rewrite the contract, it may delete unreasonable sections, provided the intent of the clause remains intact. However, this is not a failsafe, and poorly drafted covenants may still fail entirely, emphasising the importance of precise language.
• Consider garden leave: Including a garden leave clause in an employee's contract allows you to place the employee on paid leave during their notice period. This keeps them under contract while preventing them from accessing confidential information or forming a substantial personal connection with competitors. A garden leave period can help maintain business stability and keep client relationships secure while the employee transitions out.
• Act swiftly in case of breach: If a former employee violates a restrictive covenant, time is of the essence. Courts tend to look more favourably upon employers who act quickly to protect their business interests. Options include applying for an injunction to prevent the employee from further breaching the restrictive covenant. A solicitor can assist with gathering evidence and preparing documentation to demonstrate how the employee’s actions harm the business.
• Seek financial remedy if necessary: In addition to seeking an injunction, employers may pursue a financial remedy if a former employee’s actions result in measurable financial loss. Damages may be sought to recover lost revenue, profits, or the costs incurred from client losses.

With well-drafted restrictive covenants and a prompt response to any breaches, employers can safeguard their business interests effectively. Legal guidance is recommended at every step, from drafting to enforcing these clauses, to ensure compliance with employment law and optimise enforceability.

Common Pitfalls in Drafting Restrictive Covenants

Creating effective restrictive covenants requires precision and careful planning. Unfortunately, certain common pitfalls can render these clauses ineffective. Below are frequent errors to avoid:

• Overly broad clauses: Broad restrictions on geographic scope, timeframe, or activity can result in unenforceable covenants. For instance, restricting a former employee from working with any client across the UK, when they only engaged with clients in one region, is likely to be seen as excessive. Courts require employers to prove that the restriction is necessary for their business interests, so specificity is important.
• Failing to review and update: An employee’s position and responsibilities may evolve, and so should their restrictive covenants. Failing to update covenants can mean they no longer reflect the employee’s role or access level, making them harder to enforce. Regular reviews of employment contracts, especially for senior employees, help ensure covenants remain relevant and effective.
• Lack of consideration for new restrictions: Introducing restrictive covenants to an existing employee’s contract without additional benefits or “consideration” may make the clause unenforceable. For existing employees, consideration could mean offering a pay rise, a bonus, or an extended notice period to ensure the covenant is fair and legally binding.
• Inappropriate application of clauses: Not all roles require the same level of restriction. Applying broad non-compete or non-solicitation clauses to junior or administrative employees, for example, is often unnecessary and may face challenges in court. Tailoring restrictive covenants to each employee’s role and exposure to sensitive information can improve enforceability.

Avoiding these common pitfalls and drafting with care will help ensure that restrictive covenants protect the business while respecting employees’ rights to work.

Drafting Covenants for Different Types of Employees

Restrictive covenants are not a one-size-fits-all solution. The level of access an employee has to sensitive information, clients, or confidential data will determine the type and strength of the restrictions:

• Senior employees and executives: For senior employees, who often hold substantial client relationships and confidential information, stronger restrictions like non-compete and non-dealing clauses are appropriate. Senior employees are more likely to access trade secrets, client lists, and business contacts, so their restrictive covenants should reflect the higher level of protection required.
• Client-facing roles: Employees who manage or work closely with clients, such as sales or account managers, may benefit from non-solicitation and non-dealing clauses. These covenants help retain client relationships, especially if the employee has built a substantial personal connection with them.
• Junior or administrative employees: Junior employees, who have limited access to sensitive data, usually require fewer or less restrictive covenants. While it may be beneficial to include basic confidentiality agreements, overly restrictive non-compete clauses may be unnecessary.
• Part-time and freelance workers: These short-term workers can also have restrictive covenants if they have access to confidential information or work closely with clients. However, covenants should be narrowly defined to reflect the employee’s specific responsibilities and minimise restrictions on future employment.

By customising restrictive covenants to an employee’s role and access level, employers can create enforceable and fair clauses. This approach not only strengthens legal protection but also reduces the risk of disputes or challenges from former employees.

Why Seek Help from an Expert Employment Law Solicitor?

Navigating restrictive covenants in employment contracts can be legally complex. Working with an expert employment law solicitor provides invaluable advantages that protect your business, reduce risks, and ensure compliance. 

Here are the main benefits of seeking professional advice:

• Tailored covenants for specific roles
• Ensuring enforceability and compliance
• Efficient dispute resolution and enforcement
• Staying compliant with legal changes
• Practical, cost-effective solutions

Working with an employment law solicitor ensures that restrictive covenants are clear, legally binding, and tailored to each employee’s role. Solicitors provide essential support, from drafting to enforcement, giving businesses the confidence that their employment contracts are comprehensive and effective.

Why Choose JMW?

Choosing JMW means gaining a trusted partner with expertise in employment law and a commitment to client success. 

The Employment Law department at JMW Solicitors contains the expertise necessary to draft tailor-made restrictions that your business requires, or to advise on the actions that may be taken if an employee has breached a restrictive covenant in an existing contract. We can also assist you in addressing situations where an employee has breached the terms of their employment contract."

JMW is a firm that combines commercial sense with legal acumen, providing high-quality advice and services to companies across the business spectrum. Whatever the employment law needs of your business, the partner-led team at JMW will be happy to discuss ways in which we can provide solutions.