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 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).