Top 10 Tips when Putting in Place Restrictive Covenants!
It goes without saying that recruiters’ most valuable assets are their clients and candidates. Departing employees have the potential to hurt your business so it is crucial to put the right protections in place from the start of their employment.
Restrictive covenants are a useful tool to help combat this risk for recruiters. The types of restrictions used in contracts range from clauses which prevent the solicitation of clients, candidates and other employees to non-competition clauses and more. Whilst they are sometimes helpful to just act as a deterrent, the real value in having restrictions is when they are legally enforceable.
As you may know, the general legal rule is that any contractual term restricting an employee's activities after employment will be void unless you can demonstrate that: (a) you have a legitimate business interest to protect; and (b) the protection sought is no more than is necessary taking into account both side’s interests and also the public interest.
As this is a tricky area for employers to get right, we have summarised our top 10 tips for recruiters when dealing with restrictive covenants below.
Top 10 Tips
- Before including restrictive covenants in the contract, think carefully about which restrictions you need and why – some are typically more difficult to enforce than others!
If litigation results, then you need to be able to justify the restrictions included and why.Legitimate business interests can include protecting confidential information, client relationships and employees, but the restrictions still need to go no further than is necessary.The courts have to balance the employer’s interests against the employee’s right to work.
A non-competition clause (e.g. preventing the employee from working for a competitor in a certain radius) is of course much more restrictive than a non-solicitation clause (e.g. preventing them from going after clients who they worked with in the last 12 months). Non-competition clauses are much more difficult to enforce as a result.
- Draft restrictive covenants clearly and narrow them to fit the business needs
Make sure the restrictions are clear and understandable. Any ambiguity in the restrictions will be construed against you! Also, if the restrictions are too wide, then they are less likely to be enforceable so try and keep restrictions specific to the employee and the work that they did. For example, it is narrower (and more likely to be enforceable) to confirm that they cannot deal with clients who they had material involvement with over a set time period than it is to say that they cannot deal with any clients of the business.You can also seek legal advice where needed.
- Include appropriate time and geographical limits
The longer the restriction (e.g. 12 months or 18 months after termination) then the more difficult it will normally be to justify. This is particularly so in the recruitment sector where competition is fierce.
Similarly, think about the territories that you do business in and draft covenants with those in mind (rather than a blanket clause covering, for example, not working at any competitors in the UK).
- Avoid one size fits all and use different restrictions for different roles in the business
The restrictive covenants that work for a recruitment consultant may not be appropriate or extensive enough for a senior manager in your business – consider having different restrictions for different job roles in the business.
- Ensure that the employment contract is actually signed by the employee!
Whilst this seems to be a fairly obvious point, this can easily be overlooked in practice. To prevent difficulties later, always ensure that employment contracts that include the restrictive covenants are signed by the employee. This is helpful evidence to show that the employee specifically agreed to be bound by the restrictions.
- If an employee is promoted – remember to revisit the restrictive covenants in the contract!
It is important to consider the restrictions again when the employee is promoted or if their job role changes in any way. This is because previous restrictive covenants may no longer be relevant or appropriate for the new role.
- Include restrictions that address the employees’ use of social media and consider having a separate social media policy in place for employees
Social media plays a big part in finding candidates, connecting with clients and promoting business in this sector. Have you considered having a bespoke restriction drafted to address what happens to LinkedIn contacts made by the employee during the employment?
It is also worth having a separate social media policy in place (preferably signed by the employee as well) to govern the use of platforms such as LinkedIn and Twitter. This can provide added protection during the employment and also reinforces what is expected at the end of the employment.
- Remind employees of their continuing obligations owed to you when they leave
This can easily be done in a leaver letter and at the same time as dealing with leaver matters generally. It can also be helpful as an audit trail so that you can confirm you have specifically reminded the individual of those restrictions in the contract.
- Notification obligation
Consider including wording in your contracts of employment to confirm that the employee has to notify a future employer of the restrictions owed to you whilst those restrictions are still applicable. If the employee fails to do so, then they will be in breach of contract.
- Take restrictive covenants seriously!
Whilst they may seem tricky and costly to put in place, getting restrictive covenants right the first time is well worth the time and hassle. They will help to protect your business interests, including protecting clients, candidates and trade secrets. They are certainly a worthwhile investment!
If you need any further assistance or advice on the matter of restrictive covenants, then please contact either the writer, Emma James, or our Paul Chamberlain. Emma and Paul can be contacted by email on email@example.com and firstname.lastname@example.org.
This bulletin is for general guidance purposes only and should not be used for any other purpose.
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