Restrictive Covenants – What Can An Ex-Employer Do To Stop You Working For A Competitor?

The starting point is that no person can be restrained from earning a living. This is a long-standing principle of English law that the courts are generally careful to uphold.

The exception is for those who have signed a restrictive covenant when joining an employer, agreeing to post-employment restrictions that are strictly no wider than absolutely necessary to protect that employer's legitimate business interests. Employment contracts often contain these types of clause, particularly for more senior staff and in professional services. The question then becomes: are they enforceable?

What types of restriction might there be?

The usual types of restrictions are those that try to stop you from working for a competitor, working for clients that you dealt with at the previous employer, and/or from even trying to contact those clients you worked for. The restrictive covenant can include all three: a 'non-compete', a 'non-deal' and a 'non-solicit'. The employer tends to want all three but if, by doing that, the covenant becomes too wide the employer is liable to lose all protection, because the clause could be deemed unreasonably wide and therefore unenforceable.

The restriction can last for any length of time but, the shorter it is, the more likely a court will consider it to be reasonable. 12 months is at the dubious end of the scale, although for a very senior employee that might be upheld.

The justification is that the ex-employer will consider they have invested in developing the employee's skills and the client base and want to protect the return on that investment. The professional employee often considers the client base belongs to them, particularly when the clients were brought to the ex-employee with them, which is a real issue in the IFA world for example.

But if you are prevented from even working at a competitor, and your entire career has been in a specific role that means any new job is bound to be at a competitor, that sort of restriction can leave an employee without a salary at all for a period. The court has to balance the unfairness of that with the business's wish to protect its interests.

Non-compete clauses - a real example

A recent case considered the width of a non-compete clause. This was in the world of recruitment consultancy.

In January 2004 Ms Tillman joined EZ as a Consultant with an employment contract containing post-termination restrictive covenants. In 2006 she was promoted to Principal and in 2009 to Partner...