Restrictive Covenants – Overview

Restrictive covenants, in an employment contract, are specific clauses designed to protect the employer’s business during employment and/or after employment. Primarily, restrictive covenants are designed to protect confidential information, the employer’s business contacts, and the employer’s workforce.

The existence of implied terms such as fiduciary duties and/or the duty of fidelity within the employment relationship means the need for restrictive covenants during employment is not always essential. However, as soon as the employment relationship terminates so do those obligations (other than the proprietary right to confidential information). Therefore on the termination of employment unless the employer has the benefit of enforceable post termination restrictive covenants, the employee is free to compete with the employer, solicit/deal with its clients/customers, and approach its remaining employees in a bid to secure their departure. Restrictive covenants cannot indefinitely prevent these problems but properly drafted restrictions can give the employer a period of time in which to make arrangements to mitigate the damage when it does happen. If an employer is given six months without competition, or approaches to its clients and/or workforce, it can usually strengthen and secure relationships with clients and staff.