Are my restrictive covenants enforceable if I have been dismissed or made redundant?

With the continued rise in employers using restrictive covenants within employment contracts, it is important that employees are aware of their rights and responsibilities, from signing the contract of employment to their enforceability once they move to different employment. 

Ordinarily, we speak about restrictive covenants if an employee has resigned and wishes to move to a competing business or set up a competing business of their own.  However, if an employee has been dismissed or has been made redundant, are the covenants still enforceable?  Our Employment Law team reviews that question, explaining more about restrictive covenants and what would be considered to be reasonable.

What are restrictive covenants? 

Restrictive covenants are clauses which can be inserted into a contract of employment which seek to prevent employees from taking certain clients with them to a competing business, or from working for a competitor after their employment ends.

In very general terms, courts do not like enforcing such clauses as they discourage competition between businesses.  If your employer is looking to enforce your restrictive covenants, they will need to show that they are necessary to protect a legitimate business interest and that the clause itself is reasonable.

What is a ‘reasonable’ restrictive covenant?

The term ‘reasonableness’ will depend on many factors but is mainly assessed in three ways:

• the duration of the clause or how long it will affect the employee’s activities.
• the limiting geographical area.
• the specific duties/activities which are to be restricted.

The reasonableness of the clauses will be assessed at the time you entered employment and triggered the clause. This means that a tribunal, when assessing, does not have to consider the reason for you exiting the business, whether that is resignation, dismissal or redundancy. Therefore, a restrictive covenant may still be enforceable if you have been dismissed or been made redundant.

There are only very narrow circumstances when a restrictive covenant will not be enforceable following a dismissal.  If your employer has terminated your employment contract and in doing do has breached the terms of the employment contract, you will then be free from any terms of the contract which were intended to survive after termination, including restrictive covenants.  

A breach of the terms of the employment contract could include your employer dismissing you for gross misconduct and not paying notice pay but later finding that the dismissal should not have been for gross misconduct.  If, however, you have committed an act of gross misconduct and have been dismissed correctly, then your employer will still be able to enforce the restrictive covenant.

A further example would be if you resign in response to your employer’s repudiatory breach of contract. Under these circumstances, you will be entitled to regard yourself as dismissed and the covenants contained in the contract will not be enforceable by your employer.

If you are looking for advice on restrictive covenants, you can contact our Employment team today for practical and tailored recommendations by calling 023 8071 7717 or email employment@warnergoodman.co.uk.  Alternatively, you may find the following resources useful:

• Restrictive covenants for employees - An Overview
• Settlement agreements - An Overview
• Can a settlement agreement include a restrictive covenant?
• Can a restrictive covenant be removed from an employment contract?
• Employment law questions for employees

To receive regular Employment Law updates from the team regarding recent tribunal cases and legislation updates, you can subscribe to our weekly Employment Law Newsletter by completing our subscription form or emailing us at events@warnergoodman.co.uk. 

ENDS

This is for information purposes only and is no substitute for, and should not be interpreted as, legal advice.  All content was correct at the time of publishing and we cannot be held responsible for any changes that may invalidate this article.