Restrictive covenants and confidential information

Many employers will ask their employees to sign up to an employment contract which will contain restrictive covenants which will operate during the employment, but more importantly, for a period after it has come to an end. 

These typically fall into the following categories:

1. Covenant not to compete with the employer.
2. Covenant not to carry out work for former clients or customers.
3. A covenant not to solicit former clients or customers.
4. A covenant not to solicit former colleagues to get them to move firms.

In addition, the contract of employment may impose obligations which deal with the way that confidential information should be protected.  In the absence of any specific terms in the contract, an employee will still owe a duty of fidelity to the employer and not be allowed to use confidential trade secrets in any new position.

The Courts have to balance, on the one hand, the rights of the business to protect its legitimate business interests , and on the other hand, an individual’s right to pursue his trade. 

If the restrictive covenants are too wide, the Court has the option of striking them out so that they then provide no protection to the employer at all.  On the other hand if the covenants are regarded as reasonable, an employer can obtain an injunction to enforce them and, in certain circumstances can pursue a claim for compensation for any losses suffered.  Whether or not any covenant is regarded as reasonable will depend very much on the nature of the business, the nature of the role and a range of other factors, all of which make it difficult to predict whether a Judge would be prepared to enforce a covenant in any given situation. 

Examples of recent work include:

  • Non-solicitation and non-compete covenants arising in employment contract pursuant to Share sale agreement
  • Obtaining judgment for new business owner against vendor of business who became a consultant employee and then departed taking clients in breach of restrictive covenants. Enforceability of restrictive covenants in business sale. Related issues under TUPE. Complex loss calculations.
  • Advice given to the company and two new employees in respect of a letter that they had received threatening injunction proceedings as a result of perceived breaches of non-compete and confidentiality provisions;
  • Advice to client about potential claim against former vendor/employee who was approaching customers in breach of his restrictive covenants;
  • Advice on the interpretation of restrictive covenants contained in the contract of potential new employees;
  • Advice on evidence-gathering to an employer concerned that a former employee had taken confidential information;
  • Funded by his new employer, advising employee on various claims for breach of employment contract arising from the termination of a licensing and manufacturing agreement and his transfer to the new licensee.
  • Advice on potential claim against former employee of a property sales and letting agency who appeared to have taken confidential information and had joined a competitor in breach of restrictive covenants;
  • Advice on undertaking to former employer who was threatening injunction proceedings;
  • Advice on the interpretation of restrictive covenants in connection with shareholder dispute;
  • Under instruction from his new employer, advising recent employee in respect of allegations that he was in breach of various restrictive covenants in his contract of employment including a wide non-compete covenant.