A primary concern for business owners is the potential exposure of intellectual property to their employees. In some instances, individuals have observed proprietary business information being utilized by competitors following the termination of an employee’s contract. This often occurs due to the absence of a ‘Restrictive Covenant’ clause in their Contracts for Service. Business owners must address this issue proactively.
What is a Restrictive Covenant?
A restrictive covenant is a formally articulated provision within an employment contract that limits an employee’s specific activities both during and after the term of employment.
What is the Purpose of a Restrictive Covenant?
The primary objective of a restrictive covenant is to curtail an employee’s activities for a designated period following their departure from the organization. This is crucial as employees may possess sensitive information pertaining to the employer’s business strategy, customer and supplier relationships, and pricing structures, which they could potentially exploit for personal gain or for the benefit of a competitor. Additionally, such covenants may restrict the former employee’s capacity to engage with clients or customers or to utilize clearly defined categories of confidential information or trade secrets.
How many types of Restrictive Covenants exist?
There are four principal types of covenant.
- Non-competition covenants stop the employee from working for a competitor for a specified period of time in a defined geographical area.
- Non-dealing clauses stop the employee from both soliciting clients from a former employer and dealing with the client.
- Non-poaching clauses prevent employees from encouraging former colleagues to leave the employer and join them in their new organisation.
- Non-solicitation clauses prevent employees from soliciting the business of clients or customers of a former employer.
Is it Possible to Introduce a Restrictive Covenant for Existing Employees?
Yes, it is feasible to implement a restrictive covenant for current employees.
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