How do you ensure your restrictive covenants secure your business?
Employers who have legitimate proprietary business interests that require protection can do so by ensuring that their employment contracts contain restrictive covenants for a specific period post termination period. The restrictions can range from:
- non- solicitation of customers, clients and suppliers;
- non- competition, preventing the employee from working in similar employment for a competitor;
- non-dealing with former clients, customers and suppliers;
- non- poaching of former colleagues; and protecting an employer's confidential information.
It is important that clauses are drafted and tailored to your employee and the specific business that you operate. The protection sought should not go beyond what is reasonable; six months is normally the maximum for most employees and 12 months for more senior employees who have had access to highly sensitive confidential information about the company.
Poorly drafted clauses may result in clauses becoming unenforceable. For example, when a clause is specifically for 24 months and the judge deems this is unreasonable based on the circumstances, the clause will become unenforceable and the judge will not force the restriction based on a shorter period such as six months. The reasonableness of the clauses are determined on a case by case basis therefore, it is critical that the clauses within the employment contract are drafted accurately.
When looking at the geographical location that the restrictions apply to, employers should be mindful that if it is too wide it is likely that it will be unenforceable.
Breaches of restrictive covenants
The usual remedy sought for breaches of restrictive covenants is an injunction and/or returning/ erasing irretrievably any confidential information in the former employee’s possession.
Also of note, with restrictive covenants, is that the former employee’s new or prospective employer can be joined into any action being taken if it can be shown that they participated in any way towards the breach.
It is important for employers to act quickly when they become aware of the breach, as the court may not grant an injunction after a postponement when there is only a short period of the restrictive covenant remaining.
Please contact us if you are unsure whether your restrictions have withstood the test of time or you require restrictive covenants within your employment contracts. We can review/draft them to ensure they’re up to date and robust making them more likely to be enforceable.
For more information regarding contractual information, visit the Resource Centre.
