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RESTRICTIVE COVENANTS


LEGALLY PARKED


particularly if the ex-employee had no knowledge or contact with prospects.


Restricted area


There are caveats to enforceability. For example, the wider the restriction, the less likely that it will be enforceable. Care must be exercised in deciding the time period of the restriction. A covenant cannot last for an indefinite period of time. Similarly, any geographical area that applies must be reasonable. This is often relevant where a business operates within a particular area, and there is a risk posed by an ex-employee working in the same area. However, such clauses are not always enforceable. It might be legitimate, for example, to restrict an employee from working within a short distance of your offices. But if they are home-based, this might make the clause unenforceable. Also, you need to impose the right level of restriction, bearing in mind the employee’s role and status within the company. In terms of both clients and prospects, it may be difficult to enforce a covenant where the client or prospect came to the business because of a personal connection. A large number of legal cases have arisen on the wording of restrictive covenants. Although earlier cases are used to reach a decision, each case is decided on its own facts, giving rise to uncertainty on whether or not a covenant will be valid. What the cases do show is that this complex legal area is fraught with potential dangers.


3. Consider the possible risks to the business


Assess what risks might arise if an employee leaves the company, both in terms of confidential information and use of customer details.


4. Impose a geographical area to be protected


A covenant can specify the geographical area that applies. The smaller the area of restriction, the more likely that it will be enforceable.


5. Limit how long the clause will last


The covenant should be restricted in terms of time. Open-ended covenants could be unenforceable, so six months or, in


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extreme cases, 12 months should be stipulated.


6. Define customers to be protected


Where possible, include any customers or prospects whose details should be protected as part of the covenant. This can be updated from time to time, if there are any new clients or prospects.


7. Consider whether it is reasonable to include prospects It is harder to claim protection where prospects are concerned and including them may make the covenant unenforceable.


8. Protect databases Thought should be given to whether the


It might be legitimate to restrict an


employee from working within a short distance of your offices


contents of any database needs to be protected. This could include contacts, clients, customers, suppliers and prospects.


9. Use garden leave where appropriate


Garden leave may be an opportunity to protect any data, but consider whether any period of garden leave should be deducted from the overall length of the restrictive covenant.


10. Include post-termination clauses in employment contracts Do not rely on the common law. It is important to have specific, well-drafted clauses covering post-termination obligations. If in doubt, seek advice.


SEPTEMBER 2012 31


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