Restrictive covenants: What every senior employee should know

For many senior employees, restrictive covenants become relevant only when a new opportunity arises. A promotion, approach from a competitor, or decision to launch a new venture can suddenly bring contractual restrictions into sharp focus. Understanding how these provisions operate can help avoid costly disputes and unexpected obstacles when changing roles.

Restrictive covenants are contractual clauses that continue to apply after employment ends. They are designed to protect an employer's legitimate business interests rather than simply prevent competition. Common examples include non-compete clauses, which restrict an individual from working for a competing business for a limited period; non-solicitation clauses, which prevent former employees from approaching clients or colleagues; and non-dealing clauses, which prohibit the provision of services to former clients irrespective of who initiated the contact.

Contrary to popular belief, restrictive covenants are not automatically unenforceable. Courts will often uphold them where they are carefully drafted and proportionate to the role performed by the employee. The key question is whether the restriction goes no further than is reasonably necessary to protect legitimate business interests such as confidential information, customer relationships, goodwill, or workforce stability.

For senior employees, the risk of enforcement is generally higher than for junior staff. Those who have access to strategic information, pricing data, business plans, key client contacts, or commercially sensitive information are more likely to be subject to enforceable restrictions. The greater the influence an employee has over clients and business relationships, the easier it is for an employer to justify post-termination restraints.

A common misconception is that a covenant lasting twelve months will automatically be regarded as excessive and a restraint of trade. In practice, the enforceability of any restriction depends on the surrounding circumstances. Courts increasingly focus on whether the employer can demonstrate a genuine need for the duration and scope of the restriction. A longer restriction may be justified where confidential information retains value for an extended period or where client relationships are particularly significant. Furthermore, a clause that appeared reasonable when signed may become more relevant if the employee later assumes greater responsibility or gains access to more sensitive information. Equally, employers should review restrictive covenants periodically to ensure they remain appropriate for an employee's evolving role.

Before accepting a position with a competitor, senior employees should undertake a careful review of all contractual obligations, including employment contracts, shareholder agreements, incentive plans, and confidentiality obligations. Often more than one set of contractual obligations can exist across different documents and they are not always the same in terms of their application or duration! Early legal advice can often identify practical solutions that minimise risk while enabling a smooth transition.

The modern approach of the courts is neither pro-employer nor pro-employee. Instead, it focuses on achieving a fair balance between protecting legitimate commercial interests and allowing individuals the freedom to pursue their careers. For senior employees, understanding where that balance is likely to lie is essential before taking the next step in their professional journey.