Restrictive Covenants in Employment

The main types of post-termination restrictive covenants found in employment contracts are:

• Non-competition: Prevents you from working for a competitor or setting up a competing business for a specified period after leaving.
• Non-solicitation of clients: Prevents you from approaching clients you dealt with during employment to take their business to your new employer.
• Non-dealing with clients: Broader than non-solicitation — prevents any business dealings with former clients, even if they approach you.
• Non-solicitation of employees: Prevents you from recruiting former colleagues to your new employer or business.
• Confidentiality: Prevents use or disclosure of the employer's confidential information (this applies even without an express clause).

Each type of covenant is assessed differently for reasonableness. Non-competition covenants are the hardest to enforce because they are the most restrictive of your freedom to work.

A restrictive covenant in an employment contract is only enforceable if it:

1. Protects a legitimate business interest — for example, trade secrets, confidential information, or stable client relationships
2. Goes no further than reasonably necessary to protect that interest — in terms of duration, geographic scope, and activity restricted

Courts assess enforceability at the time the covenant was entered into (usually at the start of employment) and at the time of breach. A covenant that was reasonable when signed may become unreasonable if your role changed significantly during employment.

Factors that courts consider include:

• The length of time — six to twelve months is commonly accepted for senior roles; longer periods are harder to justify
• Geographic scope — a worldwide non-compete for a regional sales manager is likely to be too wide
• The scope of restricted activities — blanket prohibition on working in an entire industry is usually too broad
• Your seniority and access to confidential information or client relationships

If your employer threatens to enforce a restrictive covenant, do not simply ignore it — take legal advice immediately. Options include:

• Assessing whether the covenant is actually enforceable in its terms — many are wider than is legally justifiable
• Checking whether the employer's own breach of contract (such as failing to pay notice correctly) has released you from post-termination obligations
• Negotiating with your employer — in many cases employers are willing to reduce or waive the covenant in exchange for a settlement
• Defending any injunction application in court if your employer seeks to restrain you

Breaching a covenant that a court later finds enforceable can result in an injunction (stopping you in your tracks), damages (compensation to the employer for losses caused), and costs. Your new employer could also be liable if they induced the breach. Take this seriously and always seek legal advice before breaching a covenant.