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Employers' Guide to HR

Restrictive Covenants

It is not uncommon to find in an employment contract a number of clauses restricting the employee's ability to work elsewhere following their departure from the company.
Last Modified on: 2004/05/21 13:40
Last Reviewed on: 2009/08/28 15:36

Restrictive covenants are express terms of the contract, agreed to by both parties. So surely you might think they are acceptable under the general rules of common law. But sadly it's not quite that simple. Unfortunately, such agreements run contrary to an equally robust principle of common law, that is, an individual has the right to work freely and without undue restraint. So, for many years, any attempt to apply such a restraint was viewed by the courts as unenforceable. However, more recently, it has been accepted that some restrictive covenants can be upheld as long as they are reasonable and not contrary to the public interest.

Therefore the general approach taken to restrictive covenants is that they are unenforceable, unless they can be justified in the circumstances, and justification will depend on a number of factors as detailed below.

Reasonableness

In all cases, a judge will consider the reasonableness of the covenant in the individual circumstances of the case, so there is 'no one size fits all' clause. Restrictions must be seen to be adequate to protect the employer's interests and not excessive or punitive. Generally speaking, the narrower, more specific the clause, the better the chances are of defending it as reasonable.

Key factors to consider will be the duration of the covenant and its geographical coverage - neither of which must be greater than is reasonably necessary. ...


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