Restrictive covenants

If an employer wants to bind an employee after the employment contract has ended, for example, limiting who they can work for or where they can work, they must include a specific written term in the contract, often called a restrictive covenant. There are limits on the enforceability of these terms. A term that is a restraint of trade is unenforceable, but a term that protects an employer’s legitimate business interests is likely to be allowed. A restrictive covenant in any employment contract will only be enforced if it is reasonable. This will depend, for example, on the limits it seeks to place on the employee’s activities, the geographical area covered and how long it lasts. A term that is too wide will not be binding on the employee.

Employees who are dismissed in fundamental breach of contract are released from ongoing obligations under that contract, except their duty of confidentiality (see Chapter 10: Dismissal). This generally means that any restrictive covenants can no longer be enforced (Rock Refrigeration v Jones [1996] IRLR 675).

Even if a restrictive covenant is valid, an order (injunction) compelling the employee to obey it will only be made if the employer can show that without the order, it will suffer some harm (Jack Allen (Sales & Service) Ltd v Smith [1999] IRLR 19).