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Restrictions on restrictive covenants

Restrictions on restrictive covenants

The High Court recently provided some useful explanation on what the court will consider when deciding whether a restrictive covenant is enforceable. It will take into account all relevant factors, including:

  1. the presence of other restrictive covenants placing restrictions on the employee concerned (i.e. which would provide the legitimate business protection sought); and
  2. whether similar restraints are imposed on other employees, especially those who might have similar or greater responsibilities than the employee whose case is being considered. Where more senior employees do not have the same (or greater) restrictions, this may undermine the court’s view of the legitimacy of the business necessity of the restraints.

In relation to the wording of the covenant itself, the court said that it was important that restrictions on the solicitation of employees should apply to employees identifiable to the employee concerned (e.g. employees with whom the employee has worked or those in his team) and not just all other employees in the company (unless the company was small). The court also said that it would be unacceptable for an employee to be subject to a restraint under which he did not know what he could and could not do.

The court also explained that where it is not possible to hold a full trial before the period of restraint of a restrictive covenant will have expired or almost expired, then the relevant test as to whether the injunction should be granted is whether it is more likely than not that the applicant would succeed at trial. This is in contrast to the “balance of convenience” between the two parties which is the usual test.

Finally, the court emphasised that any application for an injunction (whether in relation to a restrictive covenant or for a ‘springboard’ injunction) must be based on facts - mere suspicion of wrong-doing is not enough.

In light of this case it may be wise to review the restrictive covenants in your standard contracts, to ensure that:

  1. Restraints are not more onerous on junior employees than on more senior employees.
  2. Non-solicitation restrictions are limited to people an employee actually works with or who is in their team.