In the area of employment law, drafting restrictive covenants can be one of the trickiest parts of the contract to deal with.
It is inevitable that when recruiting a new employee there needs to be a certain degree of crystal ball gazing and any restrictive covenants incorporated into a contract of employment will need to strike the right balance if they are to be enforceable at any point in the future. It is, therefore, no surprise that often-restrictive covenants are unenforceable and, with the benefit of hindsight, can be seen as poorly drafted.
With that in mind, it can be extremely difficult for a solicitor when advising upon and drafting such restrictive covenants. Solicitors will need to take into account future possible events such as a TUPE transfer or merger and the individual’s current role and how that might evolve throughout the duration of their employment. However, some developments are harder to anticipate such as technological advances and changes to the market within which the employer operates. Accordingly, solicitors need to ensure that they advise their clients to carry out a periodic review of such clauses, as the reasonableness of the clause will be judged as at the time it was entered into.
The Courts are prepared to enforce restrictive covenants if they are drafted in a manner which seeks to protect a legitimate business interest and if the protection that is sought is no more than is reasonably necessary to protect that business interest. A Court will not simply re-write a restrictive covenant to make it enforceable; if a Court considers that it is unreasonable then it will simply decline to enforce the covenant. There can, therefore, be no guarantee that a restrictive covenant will be enforceable, as that will very often turn on the specific circumstance of the case; what might be enforceable in one contract, may not be enforceable in another. Accordingly, a precedent clause will very often not be suitable and solicitors need to ensure they tailor their advice and drafting to their client’s specific instructions and circumstances.
Types of restrictive covenants will typically include those relating to non-competition, non-solicitation, non-dealing and non-poaching. Accordingly, as a basic requirement, solicitors need to ensure that any geographical restriction or time limit post termination of the contract is appropriate and reasonable, to ensure that they are likely to be enforceable. Solicitors also need to pay close attention to the breadth of activities that the employer is seeking to restrict and the type of interest which is being protected, taking into account the industry standard for the particular employer.
However, whilst solicitors need to, of course, provide the requisite legal advice; there may also be commercial considerations for their client to bear in mind. Taking into account the difficulty that employers will often face in enforcing restrictive covenants, and given that it is not unusual for restrictive covenants to be held to be unenforceable by the Courts, solicitors ought to remain mindful that no restrictive covenant can ever be watertight. Accordingly, in providing sound commercial advice to their clients, and in helping to manage their client’s expectations, solicitors may be best served by explaining the potential difficulties that a client might face in enforcing a restrictive covenant in the future. It is important that solicitors make their clients aware that seeking to enforce such covenants can be an extremely time-consuming and costly process.
However, in providing sound commercial advice, it might also be relevant for a solicitor to advise their client not only of the potential risk that a covenant might not be enforceable, but also regarding any risks of not including such a clause; for any client simply considering omitting a restrictive covenant altogether, solicitors may wish to remind their clients that they can prove a useful deterrent to employees who are considering breaching such terms. Accordingly, solicitors need to ensure that they are careful in their approach to the legal technicalities of drafting of any restrictive covenants but perhaps also ought to bear in mind whether it is appropriate in the particular circumstances to advise their client regarding the commercial practicalities of such covenants.
This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.