Restrictive Covenant
Restrictive covenants can be used by employers to protect three basic areas:-
- Business connections such as customer, prospective customers, suppliers and other key contacts;
- Stability of the workforce;
- Trade secrets and confidential information.
In employment law we discuss three types of restrictive covenants that are used to protect employer's business connections and the right to a stable workforce. The three types of restrictive covenants are non-compete clauses, non-solicitation clauses and non dealing clauses.
A typical non compete clause stops an employee from working for competing businesses. It is fairly draconian as non compete clauses for 12 months have been upheld by the courts.
There are two types of non solicitation clauses:-
- An ex-employee may be barred from soliciting customers, or indeed potential customers, from the ex-employer;
- An ex-employee may also be barred from poaching former colleagues after they have left (and also whilst they are working for the employer).
Non solicitation clauses can apply to customers or clients that came with the ex-employee when they joined the employer.
A non-dealing clause would stop an ex-employee from dealing in any way with the employer's clients. A non dealing clause means that even if a client approaches the ex-employee in his or her new employment, out of the blue, the ex-employee would not be able to do business with them.
Trade secrets and other confidential information are often also protected by a suitable clause. The type of confidential information that worries many employers but which is given protection by the courts, includes lists or databases of customers, management information, price and discount structure, details of suppliers and other sensitive commercial information.