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What is a restrictive covenant in an employment contract?

Which? Legal explains what a restrictive covenant means in employment law and how it may affect you once your contract ends.

A restrictive covenant is a clause in a contract that limits your freedom to use information that’s valuable to your employer. It can include things like who you can work for, where you can work and how you can use information like lists of clients and trade secrets.

While you’re employed by your employer, the law implies certain terms into your employment contract. These include the duty of trust and confidence, which prohibits you from, among other things, acting against the interests of your employer’s business and disclosing confidential information.

Certain information will remain confidential to you after you leave your employment and you will be duty bound not to share that information. This does not include what has become your “skill and knowledge”, which you cannot be prevented from using.

To ensure that you do not breach that duty of confidentiality, your employer may want to restrict where you work and who you work for. As long as it is to protect your employer’s legitimate business interests, the restrictive covenant can do that if you have agreed to the restriction (for example if there’s a clause in your signed contract) and subject to it being reasonable in its geographical area and how long it will apply to you. 

How do I know if the restrictive covenant is valid?

If the clause is simply designed to prevent you from competing against your employer and/or it seriously limits your ability to make a living in your chosen industry, the clause may be invalid for being a restraint of trade and contrary to public policy. Also, if it’s drafted too widely, your employer may struggle to enforce it against you.

Generally, whether a clause is void or enforceable will depend on several factors – not just on how the clause is worded, but also on what you do, who you work for and the nature of the industry you’re in.

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