This week the experts, Martin Brewer and Esther Smith, advise on whether restrictive covenants can be enforced.
The question: Restrictive covenants
I have a three-month notice period in my contract and the usual restrictive covenants that you would expect of a middle manager, however after six months into my 1.5 years with the company they introduced further covenants for all middle managers up, which stated that I could not work for a competitor for at least six months.
I have been offered another job with a competitor and whilst I have no trade secrets, customer or sensitive information that I could misuse, how enforceable is the statement that I cannot work for a competitor?
Martin Brewer, partner, Mills & Reeve
Firstly, there’s no such thing as ‘the usual restrictive covenants’. Restrictive covenants should always be tailor-made for each employee as circumstances differ. For covenants to be enforceable they need to protect a legitimate business interest (usually limited to so-called ‘customer connection’ and trade secrets) and must be ‘adequate but no more than adequate’ to give the employer the protection it needs. A non-competition clause is arguably the most difficult type of restrictive covenant to enforce. It’s often seen as taking a sledgehammer to crack a nut, because to protect an employer’s relationship with its customer base can usually be achieved by a simple non-solicitation of customers clause and a clause preventing you from dealing with customers for a period (even if they come to you without you soliciting their business).
Often, non-competition clauses are used to protect trade secrets. You might imagine that all that is required here is a confidentiality clause, and in many cases that will be adequate. But sometimes confidentiality clauses are hard to police and there is a real fear that the release of a trade secret would be very damaging to the employer’s business, and so the only way to ensure security of the information is to prevent the employee from working for a competitor for a period (often related to the shelf-life of the relevant trade secrets).
If you genuinely have no customer connection, trade secret or other sensitive information which, if divulged to your proposed new employer, could harm your employer’s business, then why not be up front with them, telling them you are joining a competitor but that you don’t have any information/connections which could damage their business and at least test the reaction. You may find that your employer is not bothered, but if they are then you ought to take more specific advice on your particular circumstances because you may be faced with the threat of, or even an actual injunction, or an action for damages – either of which can be very expensive.
Esther Smith, partner, Thomas Eggar
You don’t actually say whether you agreed to or accepted the new covenants introduced, but I assume that you did. The enforceability of any restrictive covenant will involve striking a balance between an employee’s right to earn a living and the employer’s legitimate interest in protecting their business. If this balance is not struck, then the covenants will be deemed to be in restraint of trade and not enforceable.
In your situation, a six month covenant would generally speaking be at the top end of what could be enforced even against a very senior employee. The fact that you have relatively short service with the company, appear to be in middle management (although you don’t say what value your package is) and only have three months’ notice, would all suggest that a six month non-compete covenant would be hard for the company to enforce. However other factors would include the nature of the industry you are working in, and any geographical restrictions associated to the covenants and specific advice should be sought.
Esther Smith is a partner in Thomas Eggar’s Employment Law Unit. For further information, please visit Thomas Eggar.