Restrictive Covenants In Contracts

A High Court case underlines the importance of careful wording when drafting restrictive covenants, as well as the need for regular review of contractual restrictions to ensure they reflect the current position. The court held that an employee was entitled to an equity share that had been offered to him on joining, despite the employer’s argument that he had forfeited it by acting in breach of post-termination restrictive covenants in his employment contract.

The claimant successfully argued that he was not in breach of his non-compete restriction, because the alleged competitive activities (high-level conference moderation) were outside the scope of the restriction. The court also found that, once the claimant had left, there was no one else in the company who carried out these activities, and so the employee could not be acting “in competition” with his former employer. This case is likely to be particularly relevant to small companies, where there is greater scope for individuals to be solely responsible for specific activities.

This checklist explains what restrictive covenants are, when they are likely to be enforceable and how they can be used in employment contracts to protect businesses’ interests.