Taking on an employee with restrictive covenants

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Not all restrictive covenants, if put to court scrutiny, will be upheld as valid.

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Employers should be careful about taking on staff with restrictive covenants in place. If the employer gives a job to someone in full knowledge that the employment will be in breach of the restrictive covenants, the employer may be liable in tort for inducing a breach of contract. 

Restrictive covenants are an increasingly common elements of employment contracts. They are designed to protect the business by preventing a departing employee from seeking employment with a competitor, approaching the existing customers or poaching staff. Their enforceability is quite a complex area and not all restrictive covenants, if put to court scrutiny, will be upheld as valid. The restrictions may last too long or cover too wide an area, for example, and will be deemed as unfair restriction on trade.

In a recent Court of Appeal case David Allen v Dodd & Co Limited the employer checked with its solicitors whether the restrictive covenants in a newcomer’s contract with his previous employer were enforceable or not. The solicitors advised that on the balance the restrictive covenants would not be enforced. When the proceedings were issued, the court took a different view and found the restrictions valid. The employer, however, relied on the advice of the solicitors, albeit erroneous, and therefore was not deemed to be knowingly inducing the contractual breach, thus escaping liability.


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Kiril MoskovchukLegal AdvisorRead More by this author

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