Get in Touch Menu

Restrictive covenants that can be relied on

20 July 2011

Restrictive covenants in contracts are widely used by businesses in order to prevent the use of privileged information.

They can provide protection for a business, which may have to enforce rights under the contract at a time when it may be most under threat, for example if key members of staff were to up and leave. Typically, contracts with employees will contain provisions against non-solicitation of customers and staff and non-competition with the business. But clauses of this sort are often challenged as being too restrictive.

In some cases, courts may be willing to cut out all or part of a clause they consider unreasonable. They have to apply certain criteria when deciding on this, such as whether a change can be made without having to modify the remaining wording or without materially altering the character of the contract the parties entered into. Generally speaking, however, courts are reluctant to intervene in ‘rewriting’ restrictive covenants to make them more enforceable.

The recent case of Francotyp-Postalia Ltd v Whitehead and others involved ‘restricted area’ covenants as well as ‘non solicitation’ clauses that the company sought to rely on when a franchise agreement came to an end. It provides a useful reminder of the need to give thought to the scope of each restriction in terms of time, space (location) and content. It also highlights the benefit of breaking up the various aspects of the restrictions into self-contained clauses and sub-clauses. In that way, if the restrictions are challenged, the court is better placed to undo the parts it finds unreasonable while allowing the rest to remain.

If your restrictive covenants are to be relied on when needed, it is essential that they are tailored to your specific circumstances, not simply taken off the shelf. Expert advice in this area will provide greater certainty.

These legal devices are the business equivalent of foul weather clothing – as long as it is well-made and watertight, it will give you much better security and confidence when the heavens open!

If you need clear and pragmatic legal advice, we’re here to help so please get in touch.

Contact us

Disclaimer: All legal information is correct at the time of publication but please be aware that laws may change over time. This article contains general legal information but should not be relied upon as legal advice. Please seek professional legal advice about your specific situation - contact us; we’d be delighted to help.
Nick Cox LLB (Hons)
Consultant, solicitor
View profile
Nick Cox
Related services
Share this article
Resources to help

Related articles

Changes to company law – what businesses need to know


This week, initial changes to company law – including the biggest changes to Companies House since it began – will start to take effect. Here, our corporate and commercial team…

Chris Wills LLB (Hons)

Unearthing the implicit duty of cooperation in commercial contracts


In the world of business, contracts are the bedrock upon which deals are built. These carefully crafted documents are a testament to the mutual understanding between parties, outlining their respective…

Richard Holland BA (Hons)
Senior associate, solicitor

Why sole director companies should check articles of association


A recent case has highlighted the importance of ensuring a company is incorporated with carefully drafted articles of association, if there is only one director. All limited companies must have…

Helen Howes LLM
Associate, solicitor
Contact us