Restrictive covenants – What to consider when leaving employment

01 Sep 2021

There are a lot of myths about restrictive covenants and whether or not they are enforceable. Restrictive covenants are enforceable if they are no wider than necessary to protect an employer’s legitimate business interests. This can be a difficult test to apply but if your ex-employer tries to enforce restrictive covenants against you they are likely to be able to meet this test – at least at an initial stage – so restrictive covenants do need to be taken seriously and complied with where possible.

Will your actions damage your employer?

The first question to ask yourself when you are taking action that may be in breach of your restrictive covenants is whether or not your actions will materially damage your ex-employer. Enforcing restrictive covenants is expensive and it is highly unlikely that your ex-employer will take action against you unless they think their business will be damaged. Also, without evidence of such damage your employer may well not succeed with any enforcement action.

For example, you may join a competitor when your covenants prevent this, but your role at the competitor may mean there is no realistic possibility of your new role damaging your ex- employer’s business.

Conversely if your actions are likely to damage your new employer you need to be much more careful to ensure that you strictly comply with your covenants. Your employer is much more likely to take action against you and much more likely to succeed with this action.

What can you do to minimise your risk?

The first remedy your employer is likely to seek to enforce your restrictive covenants is an interim injunction i.e. asking the court to order you to comply with your restrictive covenants. An interim injunction is granted at a short form hearing where the judge only looks at written documents and no witnesses give oral evidence. The order lasts until the court has time to have a full hearing of the matter with oral witness evidence.

In reality, the interim hearing is often the end of the matter, particularly if your covenants are 6 months or less as there may be no time for a full hearing before your restrictive covenants expire. At an interim injunction hearing your ex-employer only needs to show there is an arguable case that you are in breach of your covenants.

An interim injunction hearing is very expensive and uncertain and best avoided. Before going to such a hearing your ex-employer is obliged to write to you setting out their allegations against you. If you can show that they are wrong and you have written evidence proving this you may well avoid an interim injunction hearing altogether.

You should consider keeping a written record of the following types of information:

  • Where you have a non-solicit restrictive covenant keep a written record of all contact with the client showing that they contacted you first and you did not contact them (phone records, texts, emails etc);
  • Where you have a non-deal restrictive covenant keep evidence that you have not personally dealt with that client in your new role;
  • Where you have a non-poach restrictive covenant keep evidence of all contact with your ex-colleague, showing that you did not approach them. Your colleague should also keep this evidence;
  • If you are contacting individuals whose details are on your ex-employer’s database keep evidence of how you obtained their details (e.g. google searches, 3rd party contact etc.).

Remember there is no oral evidence and cross examination at an interim hearing so little weight is placed on statements made that are not backed up by a contemporaneous written record.

What if you decide to take the risk and breach your covenants?

It is very important that you don’t breach your restrictive covenants in a way that damages your ex-employer without your new employer’s knowledge and support. Your ex-employer is likely to write to both you and your new employer about any breach. If you haven’t kept your new employer informed (and sometimes even if you have) your new employer may simply dismiss you to protect themselves and you are without a job.

Don’t forget that as well as requiring you to comply with your covenants your ex-employer may be entitled to damages for the losses they have suffered as a result of your breach (or alternatively profits you have made). It is a good idea to seek an indemnity from your new employer so they will protect you for damages and legal costs if your ex-employer sues you. This needs to be done very carefully as it can be a damaging document in later litigation and should only be done with legal advice.

If you are in breach of your restrictive covenants and your breach damages your ex-employer then your ex-employer is likely to succeed with their application for an interim injunction. However, except in rare cases where your ex-employer can act without notice (normally where there is a risk of documents being destroyed) your ex-employer must write to you first seeking undertakings that you will comply with your covenants. This gives you a very short window to negotiate a better deal for yourself.

Points you may wish to negotiate include:

  • A shorter period of restriction;
  • Limiting the restriction to certain named clients;
  • A payment for release from your covenants;
  • Reducing the territorial scope of the restrictive covenant;
  • Narrowing the types of business your restrictive covenants prevent you from undertaking.

The more uncertainty you can create about whether or not the interim injunction will be granted the stronger your negotiating position so try to ensure any breaches are not blatant.

Final thoughts

So you can see that restrictive covenants are not at all black and white either as to whether or not they are enforceable or as to whether or not your ex-employer will choose to enforce them. It makes sense to avoid damaging your ex-employer’s business as far as you can if this does not unreasonably interfere with your new role. If your new role means you will damage your ex-employer’s business then keep as much evidence as possible showing you are not in breach of your covenants.

Finally if you do breach your covenants then only do so with your new employer’s blessing and be ready to seek to negotiate if your ex-employer takes action.