Restrictive Covenants: Should You Be A Rebel Without A Clause?
As any business owner will know, contracts are a vital part of ensuring a well-functioning relationship between employer and employee. Some parts, like working-time regulations, are in there to protect the interests of the employee and some, like restrictive covenants, are there for the sake of the employer.
For the most part, these clauses are needed for people who are leaving your employment, in order to protect your company in the months before and after they leave. This includes the protection of confidential information, non-solicitation of clients they might have dealt with during their employment, and non-competition against their old employer.
Yet despite the protection they offer, restrictive covenants have started to seem a little like a night out on New Year’s Eve. Good in theory, but a little underwhelming in practice.
The problem is not the clauses themselves, which provide valuable insurance, but the actual implementation of them if an employee decides to violate the agreement.
This is particularly the case for smaller companies or those with less revenue to spare, who can be put off from enforcing the restrictions due to the financial implications of taking it to court.
Not only is there the monetary ramifications to think of, but the time and effort associated with launching a legal case against someone is no small thing, and there’s always the risk that a judge won’t find in your favour – if your restrictive covenants are deemed ‘excessive’, then the case could be dismissed.
But does that mean you shouldn’t bother to include them?
The simple answer is no.
No matter the difficulties, it’s always advisable to include the clause in your employee contract to cover all bases.
As with all legal processes, there could be a hard road in front of you, but case law continues to emerge and prove just how vital these covenants are. Decorus Ltd v Penfold and another resulted in a £30,000 award of damages and a legal injunction against Decorus Ltd.’s former employee who broke his restrictive covenants by using confidential information he had gained in his employment to set up a new business.
If the monetary aspect is a worry, you may be eligible for a full or part fee remission, which you can apply for through the court.
It’s also important to remember that a legal suit is not the only option, mediation or arbitration can also be a successful tool to resolve the issue and will often be a more frugal resolution (though it’s worth noting the chance of financial resolution to the injured party is not as likely).
Even if you believe that an injunction wouldn’t be a viable option, simply having the restrictions you wish your employee to abide by in black and white can go a long way in discouraging them from breaking their contract. The signing of a contract creates a level of trust between an employee and an employer as you’ve both agreed to abide by the document until its end date.
Having the restrictive covenants within the contract can provide a valuable deterrent by clarifying a level of wrong-doing and the break in trust that would result in violating the agreed terms.
And as the saying goes, it’s better to be safe than sorry.