Time to review restrictive covenants?

Employers often instil restrictive covenants into their contracts of employment and may tend to take a “blanket approach” but how often are they reviewed to ensure that they protect the business adequately?

It is important to consider how important contractual restrictions are. Questions to consider are:

  • Does the restriction protect a legitimate interest?
  • Does it go no wider than reasonably necessary?
  • Can the employer show that the restrictive covenant is reasonable?
  • Does the restriction work for the individual employee?

A blanket approach tends not to work. Instead, the employer should consider what level of protection is necessary in each case, taking into account issues like varying levels of influence over customers and knowledge of confidential information.Remember too that if an employee is promoted, it might be time to review their contractual restrictions as they are perceived to be more important to the business. 

Also, it is important to ensure that the contract itself is signed, in order to make it binding.  Post-termination restrictions are most commonly found in employment contracts, but can also be inserted into non-disclosure agreements and staff handbooks. 

Employers must consider if the restrictions they are proposing are actually enforceable backed up by valid consideration given the market place, geography of the business and the role of the employee concerned. 121 HR Solutions can support employers who are considering a review of their contractual clauses.

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