Restrictive covenants are clauses found in both employment contracts and settlement agreements. Their purpose is to protect an employer’s business interests by restricting what an employee can do after their employment ends. This is especially important when it comes to competition.

These clauses can affect your ability to work for a competitor, contact former clients or colleagues, or use certain information after you leave. Because of their impact, it’s essential to understand what they mean before signing.

Types of Restrictive Covenants in Settlement Agreements

The restrictive covenants you typically see in settlement agreements include:

  • Non-compete clauses – stopping you from joining a competitor
  • Non-solicitation clauses – preventing you from approaching former clients
  • Non-dealing clauses – stopping you from working with certain clients even if they contact you
  • Non-poaching clauses – preventing you from encouraging colleagues to move with you

It is very common for employers to ask employees to reconfirm the restrictive covenants from their employment contract inside the settlement agreement. Sometimes, employers even ask employees to sign new restrictive covenants as part of the settlement agreement when they leave.

Are you concerned that your restrictive covenants seem too strict? Our settlement agreement solicitors can explain your rights and help negotiate fairer terms.

Why Employers Add New Restrictive Covenants at Exit

Employers often prefer new restrictive covenants to be signed during the settlement agreement process. These newer covenants are more likely to be enforceable for three key reasons:

1. They are current and up to date

Restrictive covenants signed at the end of employment reflect your final role and responsibilities, making them more relevant.

2. You are receiving legal advice when signing them

Because you are required to get independent legal advice, the courts view these clauses as properly understood and therefore fair.

3. They are supported by consideration

You are receiving a payment under the settlement agreement. This makes the covenants legally stronger and more likely to be enforceable.

Non-Compete Clauses

A non-compete clause stops you from joining a competitor or setting up a rival business for a set period after leaving your role. These clauses normally apply to a specific geographical area linked to your former workplace.

Non-compete clauses are the strictest type of restrictive covenant. Because they limit your ability to work, they are also the least likely to be enforced by the courts unless they are reasonable and necessary.

If a non-compete clause could affect your ability to work, get advice before signing.

Non-Dealing and Non-Solicitation Clauses

These types of covenants are more common and often more enforceable:

Non-dealing clauses

Prevent you from working with certain clients after leaving, even if the client contacts you first.

Non-solicitation clauses

Stop you from approaching or inviting former clients to leave your employer and follow you to a new business. These clauses are usually easier for employers to justify, especially where client relationships or confidential information are involved.

When Are Restrictive Covenants Enforceable?

Restrictive covenants are only enforceable if they go no further than necessary to protect a legitimate business interest.
This might include:

  • Confidential information
  • Client relationships
  • Trade secrets
  • Goodwill

If a covenant is too broad, for example, banning you from working anywhere in the industry for a year, a court may refuse to enforce it.

Restrictive covenants must be drafted carefully. Courts only enforce them when they are reasonable in:

  • Scope (what you’re restricted from doing)
  • Duration (how long it applies)
  • Geographical area (where the restriction applies)

Our settlement agreement solicitors can tell you whether your covenants look enforceable or excessive and what can be negotiated.

Why You Must Get Legal Advice Before Agreeing to Restrictive Covenants

Restrictive covenants can seriously affect your ability to find future work. That’s why it’s essential to get independent legal advice before agreeing to them in either your employment contract or your settlement agreement.

Our solicitors can:

  • Check whether the restrictions are fair
  • Explain how long they last
  • Review the area they cover
  • Confirm whether they could limit your future job opportunities
  • Negotiate wording to make the clauses more balanced

Entering into the wrong covenant could make it very hard to accept a new role in your industry.

What Happens If You Breach a Restrictive Covenant?

If an employer believes you’ve broken a restrictive covenant, they can claim in the High Court. They may request:

● An injunction

A court order requiring you to stop the activity immediately.

● Damages

Money to compensate them for any financial loss caused by the breach.

● An account of profits

If your actions made a profit from the breach, the employer may ask for that profit to be paid to them. High Court cases can be expensive, and the losing party often has to pay the winner’s legal costs.

This is why it is crucial to understand your obligations and get advice before signing anything.

If you think you may have breached a restrictive covenant, or are worried you might, seek legal advice immediately.

Protecting Yourself Before Signing Restrictive Covenants

Restrictive covenants are powerful clauses that can influence your future employment and earnings. Before signing, take the time to understand exactly what the restrictions mean, how long they last and whether they are necessary or fair.

A lawyer can help you:

  • Reduce the length of restrictions
  • Narrow the scope of the clause
  • Remove overly broad areas
  • Ensure you can still work in your field
  • Negotiate better terms within the settlement agreement

Our settlement agreement solicitors can review your restrictive covenants, assess whether they are enforceable, and help negotiate more reasonable terms.