30th November 2021

Are Restrictive Covenants Worth the Paper they are Written On?

The answer is, they can be. They can be extremely worthwhile to protect the bottom line of a business. The better question is are your restrictive convents worth the paper they are written on?

Restrictive covenants, sometimes called post-employment restrictions, seek to stop a departing employee from doing certain things – most commonly soliciting and/or dealing with customers, clients, suppliers and other employees of their employer, or being in competition or working for a competitor – for a specified period of time after their employment has ended.  It is true to say that they will not be enforceable unless the employer can show that:

  1. it is designed to protect a legitimate business interest that it is appropriate to protect; and
  2. the protection sought is no more than is reasonably necessary to protect that interest.

Employers don’t often find it difficult to show that they have legitimate business interest that it is appropriate to protect. For example, trade connections, trade secrets and confidential information and stability of the workforce are all legitimate business interests which, if not protected could cause significant harm to the business. Restrictions tend to fall down when their reasonableness is considered and this is why: The level of protection the employer seeks to gain from the restrictive covenant is not tailored according to what is appropriate for the specific employee and the role they hold or the part of the business in which they work. As a result, the restriction is more than is necessary to protect the legitimate business interest – whether that’s because it’s too long in duration, covers customers the employee never had any dealings with or covers the whole of Scotland when the customer base was local – and it is unenforceable.

One of the biggest mistakes employers make is to use the same restrictive covenant clause in its contracts of employment. Every employee, regardless of their role, seniority, duties and with whom they have dealings (and the extent of those dealings) have the same restrictive covenants. In all likelihood, there will be at least one employee which if an employer tried to enforce the restrictive covenant against would find that it was unenforceable. Another big mistake is to never periodically revisit restrictive covenants and consequently, when for example, the business grows, expands or promotes employees, the likelihood of their being held to be unenforceable increases.  

It’s currently a job candidate’s market. Employees are being lured away by your competitors. Take action now to protect your business. Revisit your restrictive covenants and ask yourself, are they worth the paper they are written on?

For help and advice contact a member of the Blackadders Employment Team working in Aberdeen, Dundee, Edinburgh, Glasgow, Perth and across Scotland.

Donna Reynolds, Partner
Accredited by the Law Society of Scotland as a Specialist in Employment Law & Discrimination Law
Employment Law
Blackadders LLP

@EmpLawyerDonna

www.blackadders.co.uk 

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