Businesses often want their recruits to give their agreement to behave in a circumspect way if and when their employment relationship closes. The employer will incorporate these post-termination restrictive covenants either in the employment contract or in a separate deed.
The basic legal position is that restrictive covenants are in restraint of trade and consequently are void as being contrary to public policy. However if an employer can show that it has a legitimate business interest to protect, and the scope of the restrictions are no more than is reasonable to protect those legitimate business interests then a restrictive covenant will be enforceable.
The following types of covenant exist:
non-solicitation covenants – which seek to prevent the ex-employee from soliciting the custom of those of the employer’s clients and suppliers with whom the ex-employee worked. Solicitation requires an element of persuasion or advertising by the ex-employee. Non-solicitation covenants apply for a set period of time following termination.
non-dealing covenants – which attempt to prohibit the ex-employee from dealing with those of the employer’s clients and suppliers with whom the ex-employee worked. Non-dealing covenants operate irrespective of whether the ex-employee or a client or supplier initiates the approach (therefore they are broader than non-solicitation covenants). They apply for a set period of time following termination.
non-competition covenants – which seek to prohibit the ex-employee from engaging in competitive activity. Non-competition covenants apply for a set period of time following termination, within a specific geographical area.
non-poaching of employees – these covenants seek to prevent the ex-employee offering work to former colleagues. They apply for a set period of time following termination.
Read how restrictive covenants impact both employers and employees.