Restrictive Covenants

Restrictive Covenants


QUESTION: Can your employer stop you from working for a competitor after you leave their employment?

Possibly! It will all depend on your contract of employment and whether or not your employer has a legitimate interest to protect. There is a lot of mythology around what are known as “restrictive covenants” with even lawyers sometimes declaring that they are not worth the paper they are written on. In some cases this is true, but not in every case.

As with so many other legal issues, it all depends on what is reasonable. The courts are required to judge ‘reasonable’ against the “what would the ordinary man or woman on the street regard as reasonable”.

If you’re a sales assistant in the local shoe shop then for sure your employer cannot stop you working in the competing shop over the road. On the other hand, if you work in a high tech industry and have unique skills acquired from your employer, it is possible that your employer may at least delay you joining a competitor. In retail this would be more likely to apply to senior buyers rather than local managers.

Unless there is a restrictive covenant in your employment contract then there is nothing they can do. If there is, then it will be judged on whether it is reasonable in time and scope, and whether your employer has a legitimate interest to protect. Such clauses are very common in the recruitment industry.

So if you do have such a clause, what happens if you breach it?

The danger is that you will be sued for damages. The employer is at risk here, too. If they sue you and lose, they will be liable for all your costs. Of course, if they win, you are liable for theirs. In practice such covenants are not often enforced, but you would be well advised to check with a lawyer with relevant experience before you go ahead and breach the covenant.

Your new employer will most likely have a view and, presumably, will arrange that advice for you. What is essential is that you tell your new employer about the contract.

Tash Kitsis

Wednesday, 14 June 2017 at 10:03am

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