Restrictive Covenants in employment contracts

Restrictive Covenants in employment contracts

 

A restrictive covenant is a clause in an employment agreement that restricts/ prevents the employee from competing with the business of the employer for an agreed period of time. The restrictions will usually relate to competing in direct competition i.e. dealing with or taking clients/ customers of their former employer and also enticing employees to come work for them. Whether these restrictive covenants are enforceable i.e. if an employee leaves his/her employer and then acts in breach of the restrictive covenant will the employer be able to get an order from a court enforcing the restrictive covenant.

The factors which will be taken into account by a court can be summarised as follows:

  1. Is the restriction reasonable both in terms of length of time and geography.
  2. The courts will not uphold the restrictive covenant if it prevents the employee from reasonably earning a livelihood i.e. preventing an employee from working for a competitor could theoretically prevent the employee earning a livelihood.
  3. If for instance the restrictive covenant is too broad in geographical terms .i.e. it restricts the employee from working in this business for the whole of Dublin this could be deemed to be overly restrictive if it is deemed unnecessarily obstructive to the employees chances of getting another job and unnecessary to protect the employer’s business.
  4. Similarly if the restrictive covenant is too long in duration i.e. generally longer than 12 months it may fall foul has been unreasonable.
  5. When drafting a restrictive covenant one has to ask the question as to whether the covenant is reasonably necessary to protect the employer’s business and is not unreasonably restrictive on the employee’s chances of getting another job in the same business.
  6. One final point to make is that if a restrictive covenant is inserted in a termination agreement where the employee has received an ex gratia payment from the employer, the courts are more likely to enforce such a covenant as the presumption will be that the employee has affectively received a payment which will in some way compensate for the possible restrictions on obtaining immediate employment in the same area of work.

 

For further information on this topic or any other employment matters please do not hesitate to contact Brendan Dillon or Niall MacCarthy on 01-2960666.