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By LegalEdge News

5 mistakes to avoid with restrictive covenants in employment contracts


In our previous blog A basic guide to restrictive covenants in employment contracts we looked at how restrictive covenants can be a useful, protective tool for employers. In this blog we highlight 5 mistakes to avoid, so that you have the best chance of enforcing them.

Think about the actual damage an individual could realistically do if they left, in the worst-case scenario – such as going to work for your main competitor and giving them confidential information. Restrictive covenants should go no further than is necessary to protect against that.

Courts won’t enforce covenants that unfairly keep employees out of the job market. Particularly when it comes to junior and non key staff. Consider if you need them to sign-up to restrictive covenants at all, if their role means they are not going to be exposed to confidential information a short, scaled back restriction may be all that is needed.

Individuals and circumstances are never the same, so make sure you tailor your restrictive covenants to reflect the facts each time. While it’s understandable to want to use standard templates this can be risky when it comes to covenants, so don’t be tempted to cut corners.

A court will judge the reasonableness of any restrictive covenant at the time it was agreed. If you’re recruiting someone in the expectation they will grow the business in a certain direction, then it is reasonable to draft your covenants to protect what is anticipated for the future.

Employees move around within businesses, and they get promoted and become more senior. When you’re giving someone a promotion always consider whether their existing restrictive covenants (if they have any) remain reasonable and appropriate to protect the business. If the answer is no the promotion should be conditional on them signing a new contract.

An early-stage business run by founders will have different requirements to a scaling business with lots of employees at different levels. At the outset, it could be important to have lots of restrictions in place to protect the business but, later, with many more junior employees on board, this will change.

And remember, if you’re going through funding rounds, potential investors will be looking to establish the security of the business and its assets; so the enforceability of restrictive covenants, particularly for senior or technical staff will be scrutinised.

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