Restrictive Covenants - Are they enforceable?

Restrictive covenants are important tools and help form part of the employment contract. It is imperative that employees and employers understand the importance of restrictive covenants.

Restrictive covenants are contractual obligations that employees must comply with during the course of their employment and post-termination. The most common forms are non-compete, non- solicit, non- dealing and confidentiality clauses. Each of these provisions have different purposes.

For employers, restrictive covenants are primarily focused on the protection of the business as company's heavily invest in recruitment, training and developing employees. Employees have access to the company's software, database and other confidential information. Therefore, without protective measures in place a departing employee could use the information that they obtained during their employment to advance a competitor. Restrictive covenants help prevent an unfair competitive advantage. However, it is important to note that the courts do not just simply enforce restrictive covenants just because it is in a contract. This means that employers must carefully draft the clauses in scope of geographical area, duration and activity. For example, it may be reasonable for a Senior Sales Executive to have restrictions for 6 months, but not for a junior salesperson with limited exposure.

In order for a restrictive covenant to be legally enforceable, such provisions must protect a legitimate business interest and must go no further than is reasonably necessary.

From an employee's perspective, restrictive covenants can significantly affect career mobility.  An employee who signs a non-compete at the onset of their employment may not fully grasp the importance of the clause until later when they are unable to accept another job offer. Therefore, disputes often arise when employees assume that restrictive covenant clauses are 'standard' and unenforceable only to discover that well drafted restrictions can and will be upheld and enforced by the courts.

Employees should carefully review their contract of employment prior to signing and obtain advice. It is important to note that not all restrictive covenants are drafted equally. Depending on the industry an employer can impose more strict or relaxed restrictions. Employees leaving their jobs must consider their continued obligations to comply with their post-termination clauses.

Ultimately, restrictive covenants are a balancing act between a business interest and individual freedom. When thoughtfully drafted and fairly applied they can safeguard business interests without unduly restricting professional growth.

In a dynamic where competitive labour is increasingly growing, employers must draft with precision and fairness. Employees must agree and sign with clarity and foresight.  

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