Restrictive covenants – worth the paper they’re written on?

Restrictive covenants – clauses seeking to restrain an employee’s competitive activities after employment comes to an end – often get included in employment contracts as standard, particularly for more senior roles. The view is sometimes expressed that such clauses are not enforceable, but what is the reality?

Here, we take a practical look at restrictive covenants and consider the purposes of including them in a contract, whether they will be enforceable in practice and what steps an employer should take to ensure their business is properly protected when key employees move on.

What Are Restrictive Covenants?

Restrictive covenants are clauses in employment contracts that look to prevent employees engaging in certain activities after their employment ends. The aim is to protect the employer’s business from unfair competition, loss of key relationships, or misuse of confidential information.

The most common forms are:

• Non-compete: seeks to prevent the employee from working for a competitor or setting up a competing business when they leave a company.
• Non-solicitation: prohibits active approaches to do business with the employer’s clients or customers, in competition.
• Non-dealing: prevents the former employee from doing business with the employer’s clients, even if the client makes the first move.
• Non-poaching: prevents the former employee from trying to recruit former colleagues or team members.

These clauses can play a valuable role in protecting legitimate business interests—but only if they are carefully drafted and proportionate to the risks involved.

Scots v English Law

One important distinction to note relates to “consideration” – this being the value, or benefit for what an employee receives in return for agreeing to a contract change.

In England and Wales, if an employer wishes to introduce new restrictive covenants after employment has already begun, additional consideration must be provided. This could be a pay increase, bonus, or promotion. Without it, the new covenants may not be enforceable.

In Scotland, fresh consideration is not required. An employee’s agreement is still necessary for any contractual change, but there is no separate requirement to provide something in return for agreeing to a new restrictive covenant.

The Importance of Tailored Drafting

One of the most common pitfalls employers face with restrictive covenants is that they’re not always tailored to the individual employee’s role. Boilerplate or overly broad clauses often fail when tested in court.

Crucially, restrictive covenants will only be enforceable if they are reasonably necessary to protect the employer’s legitimate business interests, such as confidential information, client relationships, or workforce stability. They must also be proportionate in terms of their duration, geographic scope and the activities they look to restrict. What will be reasonable and appropriate will vary from case to case based on the employee’s seniority, access to confidential data, extent of client contacts etc.

For example, a non-compete clause that might be reasonable for a senior account manager with access to sensitive commercial information and heading up key client accounts may be entirely inappropriate for a junior employee with limited client contact. Tailored drafting is vital, not only to improve enforceability, but to show that the employer has considered the specific risks involved.

Common Pitfalls:

There are some common mistakes that reduce the likelihood of a restrictive covenant being upheld:

• Overly broad restrictions: If the clause covers too long a period (for example, 12 months without clear justification) or too wide a geographical area (where relevant), it’s unlikely to be enforceable.
• Lack of a legitimate interest: Restrictive covenants cannot simply be about protecting the employer from competition. There must be a clear business interest at risk—such as the unfair misuse of client connections or access to commercially sensitive data.
• Generic drafting across all contracts: Using the same clause for all employees, regardless of role or seniority.
• Overly vague drafting: Failing to properly define “customers”; restrictions should generally be limited to customers the employee has dealt with or been responsible for during their employment. And the restrictions should not extend to types of goods and services which the employee was not involved in.
• Failure to update contracts when roles change: If an employee is promoted or their responsibilities evolve significantly, the restrictive covenants should be reviewed and revised accordingly.

Enforcing Restrictive Covenants

Where there is concern that a former employee has breached a covenant, or is about to, the employer should act quickly.

In Scotland, enforcement is typically by way of interdict. In England, the equivalent would be an injunction. To obtain an interdict, the employer must show that:

• The covenant is valid and enforceable;
• There has been (or is imminently likely to be) a breach; and
• Damages alone would not be a sufficient remedy.

Where there is an urgent concern that a restriction is going to be breached – or is in the process of being breached – an interim interdict can be sought within days, or even hours. In this situation, the court will apply a two-stage test to the question of whether an interim interdict should be granted. Firstly, the Court will consider whether the employer has made out a prima facie case (i.e. whether a stateable case has been pled against the former employee). Provided that test is met, the Court will then consider whether the “balance of convenience” favours the granting of the interim interdict. In essence, it will consider whether the employer is likely to suffer irreparable harm without interim interdict being granted.

In addition to seeking interdict, an employer can also claim damages for any loss suffered as a result of a breach. However, quantifying this kind of loss, particularly where it relates to goodwill or client relationships, can be complex and practically difficult to demonstrate.

Are Restrictive Covenants Worth It?

When drafted properly and used appropriately, restrictive covenants are a valuable tool to help employers protect their business. But if they’re too broad, poorly drafted, or irrelevant to the employee’s actual role, they may offer little real protection.

To give restrictive covenants the best chance of holding up to challenge:

• Tailor them to the individual role – what’s appropriate for a senior commercial manager will likely not be appropriate for a junior employee.
• Keep them proportionate – in terms of time, scope and geography. Avoid the temptation to seek protection for excessive periods of time – what is the shortest period of protection you reasonably need, in order to build new relations with the customer, after the employee has left?
• Review regularly, especially after promotions or changes in responsibility.
• Document changes properly – especially when introducing new covenants mid-employment.
• Act quickly if there’s a suspected breach, since delay can seriously weaken an employer’s position.

Getting restrictive covenants right requires more than just a standard clause in a contract. But with the right approach, they remain a valuable tool for employers looking to protect their commercial interests. For expert advice on drafting appropriate restrictions contact any member of our employment team.

This update contains general information only and does not constitute legal or other professional advice.