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The importance of enforcing restrictive covenants when employees leave to work for a competitor
Enforcing restrictive covenants is one way for employers who wish to protect their business from unfair competition from departing employees. They are used by employers to safeguard particular confidential information (including client connection) and technologies against competitors and they are …
Enforcing restrictive covenants is one way for employers who wish to protect their business from unfair competition from departing employees. They are used by employers to safeguard particular confidential information (including client connection) and technologies against competitors and they are usually written into an employee’s contract of employment.
In a recent case, Capgemini India Private Ltd v Krishnan (2014 EWHC 1092 QBD), the High Court had to decide whether former employees were bound by an agreement they had entered into, following termination of their employment, which repeated restrictive covenants originally contained in their employment contracts with their previous employer.
The employees in this case were employed by two companies within the Gapgemini group. There was a restrictive covenant in their employment contracts which prevented them from dealing for six months after they left the company with any existing customers with whom they had business dealings or whose sensitive information they had access to, within the last six months of their employment.
Employers may seek to protect the use of important information during employment and after the employment ends through the use of restrictive covenants. Many employers choose to include these clauses in the contracts of employment of senior or highly skilled staff at the beginning of the employment relationship. Having such clauses set out in the employment contract at an early stage may help to deter employees from joining competitors and could warn off potential new employers.
A restrictive covenant is typically a clause in a contract which prohibits an employee from competing with his ex-employer for a certain period after the employee has left the business, or prevents the ex-employee from dealing with customers of the business by using knowledge of those customers gained during his prior employment.
Outcomes of court cases about the enforcement of restrictive covenants are notoriously unpredictable, which is why most do not even get to court.
There is a benefit in getting employees to re-affirm covenants when they leave employment, which can usually be done as part of a settlement agreement. Although it sounds like a legal technicality, requiring employees to establish why covenants should not be enforceable is, for employers, a significant improvement on the usual position, in which the company has to prove why its covenants should be enforced.
Royds’s Employment team has considerable experience in providing practical advice and commercial solutions for employers looking to protect their confidential information. For more information, please visit or contact Richard Woodman, Gemma Ospedale or Caroline Doran.