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08. Restrictive Covenants
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08. Restrictive Covenants

Definition and Types of Restrictive Covenants

A non-solicitation of employees A restrictive covenant is a contractual provision which seeks to protect an employer’s business by restricting certain activities by an employee for a specified period post-termination of their employment.

Types of Restrictive Covenants

Non-compete clauses

A non-compete seeks to restrict an employee’s ability to work for a competitor(s) or carry on a competing business within a certain geographic area and for a certain period post-termination of employment.

Non-solicitation of customers

A non-solicitation of customers seeks to prohibit an employee from soliciting customers, clients, etc. of their (former) employer for a certain period post-termination of employment.

Non-solicitation of employees

seeks to prohibit an employee from soliciting certain employees (usually, ‘key employees’) of their (former) employer for a certain period post-termination of employment.

Enforcement of Restrictive Covenants – Process and Remedies

Generally speaking, restrictive covenants are difficult to enforce in Ireland and they are generally deemed to be void as a restraint of trade.  A restrictive covenant will only be enforceable where the employer has a legitimate interest to protect (e.g. customers, goodwill, confidential information) and if the restriction is reasonable in terms of its intended duration, geographical scope and the scope of the product or service.  A covenant which is overly broad or unspecific may be deemed unenforceable.  In such circumstances, a court will not rewrite a clause but may deem it void in its entirety.  Restrictive covenants are typically enforced by way of an injunction (which is an equitable remedy, granted at the discretion of the court).  As an alternative or additional remedy, an employer may bring a claim for damages or a claim against the new employer for inducing a breach of contract.

Use and Limitations of Garden Leave

Garden leave arises where an employee, having resigned or given notice of termination of employment, is instructed by the employer not to perform their regular duties, contact customers/clients or attend the workplace for some (or all) of the notice period.  During garden leave, an employee receives their full salary and benefits and remains an employee of the company (until the end of their notice period).

The net effect of garden leave, from an employer’s perspective, is that the employee is effectively ‘out of the market’ while on garden leave and does not have access to clients/customers, colleagues and confidential information.  The goal, from an employer’s perspective is that the employee is kept out of the market long enough that any confidential information they may have goes ‘stale’/out of date, or the employee’s successor can establish themselves (and retain customers, clients, etc.).  Garden leave can be a particularly helpful tool for an employer who wishes to prevent a senior executive with a long notice period from immediately joining a competitor or starting their own business.

Ideally, the employment contract should contain an express provision permitting an employer to place an employee on garden leave and the provision should also outline the powers of the employer/duties of the employee during garden leave.

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