Restrictive covenants


Restrictive covenants in contracts have to satisfy a number of conditions for them actually to be enforceable.

Firstly they must protect a legitimate business interest of the employer such as trade secrets or customer connection.

Covenants in restraint of trade are upheld not on the ground that the employee would , by reason of his employment or training, obtain the skill and knowledge necessary to equip him as a possible competitor in the trade, but that he might obtain such personal knowledge of and influence over the customers of his employer or such an acquaintance with his employer’s trade secrets as would enable him , if competition were allowed , to take advantage of his employer’s trade connection or utilise information confidentially obtained.

Having identified a legitimate interest to protect, the contractual provision in question must be no more than adequate to protect that interest. Clearly the reasonableness of the ambit or duration of any restraint is tied to the nature of the interest in question. If it is sought by an employer to protect his customer connection , that may be achieved by post termination restraints which prohibit for a reasonable period of time the ex-employee from soliciting or dealing with those customers with whom the employee had contact during the course of his employment. Prima facie there would be no justification for imposing on that employee a post-termination restraint which prohibited him from entering into employment with a competitor. However , if an employer wishes to protect trade secrets or confidential information he may be justified in imposing a post termination restraint prohibiting the employee from joining a competitor for a reasonable period of time. It is dangerous for an employer to seek too wide a protection for a limited interest because a court is entitled to look at the nature of the restraints imposed with a view to determining whether a lesser restraint would have been adequate to protect the employer’s interest.


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