The world of business can be a dog-eat-dog one. Business owners must stay one step ahead of the game and protect their assets. But what happens if their attempts cross the line. Well, you may have unreasonably restrictive covenants.
What is a restrictive covenant?
Restrictive covenants are clauses in an employee’s contract which restrict an employee’s actions if they were to leave their job.
Although they sound harsh, they are a common part of many contracts designed to protect the business.
Consider Coca-Cola for example. The worldwide leader in fizzy drinks guards their secret formula so closely that the recipe is kept in a vault. There’s even a popular urban myth that only two people are ever privy to the recipe and they are never allowed to travel together in case of a disaster.
A similar story was passed around about KFC and it’s secret mix of herbs and spices.
With something as important to a company as a long held recipe, putting restrictions on ex-workers and their next steps makes complete sense. Think about it – if you were to leave Coca-Cola and had knowledge of the secret formula only to go to rivals Pepsi Co, the makers of Coke would be jeopardising their very business.
What type of restrictive covenants are there?
There are four main types of restrictive covenants a business may include in an employer’s contract limiting things such as distance and next employer.
- Non-competition covenants
These restrict an employees ability to work for a competing company in a similar position. The Coca-Cola example would be a non-competition covenant.
- Non-solicitation covenants
Any non-solicitation covenant prevents ex-employees from using their knowledge of a company’s suppliers or customers to ‘poach’ them away.
- Non-dealing covenants
A non-dealing covenant is put in place to prevent contact between themselves and their ex-clients, customers or suppliers. This point stands even if the client or customer makes first contact.
- Non-poaching covenants
Similar to non-solicitation covenants, rather than ‘poaching’ clients and suppliers, non-poaching covenants are designed to stop employers taking a whole team of people with them when they leave.
How long does a restrictive covenant last?
The time limit on a restrictive covenant is usually outlined in your employment contract. Typically though, anything over from 6-12 months is unusual and it may result in an unreasonable restriction on an employee.
What is Gardening Leave?
Maybe once best known for Premier League managers taking it between jobs, gardening leave is becoming more and more popular, and can work for both employee and employer.
A specific clause in a restrictive covenant, gardening leave means for part of or the entire duration of notice, the employee at home. While at home, they will continue to receive their usual pay and benefits. they will not be able to start work for a rival company.
Is a restrictive covenant enforceable?
It is, so long as it is deemed to be reasonable. Whether a covenant is deemed reasonable depends on the nature and timescale of the covenant, as well as the scope of confidentiality.