Definition and Types of Restrictive Covenants
A restrictive covenant is a clause, which is intended to protect an employer’s business by restricting the activities of its employees, generally after the employment has terminated.
Types of Restrictive Covenants
This restricts an employee’s ability to work for certain competitors or carry on a competing business for a certain period of time after termination.
- Non-solicitation of customers
This prohibits an employee from soliciting certain clients or customers of their former employer for a certain period of time after termination.
- Non-solicitation of employees
This prohibits an employee from soliciting certain employees of their former employer for a certain period of time after termination.
This prohibits an employee from doing business with certain clients or customers of their former employer for a certain period of time after termination.
Enforcement of Restrictive Covenants – Process and Remedies
Restrictive covenants are not automatically enforceable simply because they have been incorporated into a contract of employment. In fact, there is a presumption that restrictive covenants are automatically void for being in restraint of trade and contrary to public policy, unless the employer can show that:
- it has a legitimate proprietary interest that it is appropriate to protect, and
- the protection sought is no more than reasonable having regard to the interests of the parties and the public interest.
If an employer can demonstrate this, then restrictive covenants are usually enforced by way of equitable remedies such as injunctions, which are granted at the discretion of the court.
Alternatively or additionally, an employer may make a claim for damages, a claim for inducing breach of contract against the employee’s new employer, or they may seek undertakings from the employee that they will observe the contractual restrictions pending the outcome of a speedy trial of the action.
Use and Limitations of Garden Leave
Garden leave is a tool by which an employer can prevent departing employees from performing their regular duties. Typically, the employee will be prevented from attending the workplace but will still receive full pay. This has the effect of restricting the employee’s access to customers, clients, staff and information, and hampers their ability to work for a competitor. If an employer wishes to put an employee on garden leave there must, in most circumstances, be an express term in the employment contract permitting it to do so. Otherwise, they could be breaching the employee’s implied right to work and therefore be in breach of contract.