LRD guides and handbook June 2014

Law at Work 2014

Chapter 3

Restrictive covenants

[ch 3: page 90]

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 term in the contract, often called a restrictive covenant.

There are limits on the extent to which an employee can be bound by a restrictive covenant. 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 will only be enforced if it is reasonable. This will depend on:

• the extent to which it tries to limit the employee’s activities;

• the geographical area covered; and

• how long it lasts for.

If a term is too wide it will not be enforced.

Employees who are dismissed (actually or constructively) in fundamental breach of contract are released from their on-going obligations under that contract, except their duty of confidentiality (see Chapter 10: Dismissal). In particular, this 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 employer wishing to rely on it must still show that a breach will do it some harm (Jack Allen (Sales & Service) Ltd v Smith [1999] IRLR 19).