Restrictive Covenant Solicitors
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What is a Restrictive Covenant?
A restrictive covenant is a clause in a contract, agreement or other legal documents — such as the title deeds to a property — which controls or restricts the actions of an individual or group of people.
Whether you intend to include a restrictive covenant in a business agreement or enforce an existing restrictive covenant, it is essential to take specialist legal advice.
You should also take expert legal advice before agreeing to a restrictive covenant or receiving a restrictive covenant you want to challenge as not enforceable.
Different Types of Restrictive Covenants
Employment Contracts
It is not unusual for an employment contract to contain a covenant which imposes post-termination restrictions on a departing employee.
Often, the intention is to act as a brake to stop employees from “poaching” customers from the previous employer to a new one; these are usually called non-poaching covenants. A restrictive covenant in an employment contract could also involve protecting confidential or sensitive information — such as a non-disclosure agreement (NDA).
Restrictive covenants in employment contracts are more rigorously scrutinised than those in business agreements where the parties are deemed to have equal bargaining power. In employment law, there is an assumed inequality between employer and employee.
Property Disputes
Restrictive covenants can affect land boundaries. They control and limit what happens to a piece of land or property or prohibit specific actions.
Restrictive property covenants are independent of and unrelated to planning permission requirements. Accordingly, planning permission does not override or negate them.
Boundary disputes between neighbours are commonplace. Restrictive covenants can help regulate possible contentious issues between two parties whose properties adjoin.
Property or land deeds can contain restrictive covenants and have their existence recorded at the Land Registry. New-build homes or commercial property developments often have restrictive covenants imposed by the original developer.
Restrictive Covenants in Business
Restrictive covenants can be imposed by a business wishing to protect their company or partnership when an employee leaves, particularly if they are moving to a direct competitor.
Restrictive covenants may be tested in court to determine whether they are enforceable by the employer or avoidable by the former employee.
There are other commercial reasons why a contract should include carefully drafted restrictive covenants. If you are purchasing a business, it is relatively routine to include a restrictive covenant to prevent the seller from setting up a new business in direct competition within a defined radius.
The creation of partnership agreements, joint venture agreements, sale and distribution agreements, agency agreements and exclusive supply and purchase contracts are just some examples where a restrictive covenant (and indeed often should) arise.
It is sensible to take expert advice when considering any commercial agreement in which a restrictive covenant would be beneficial, if not essential, to protect business interests.
Restrictive covenants are only enforceable if the clause does not extend beyond what is necessary to protect a legitimate business interest. Hence the need for expert consideration of both the restrictive covenant’s scope and exact wording.
Agreeing to a restrictive covenant needs strategic advice and may require expert negotiation.
Restrictive Covenants in Business Contracts
There are five main types of restrictive covenants in business contracts:
- Non-compete: One party to the contract is prevented from competing directly or indirectly with the other
- Non-solicitation: One party cannot solicit employees or customers from the other party
- Non-dealing: One party is precluded from dealing with the suppliers and customers of the other even when approached freely
- Non-poaching: Prevents one party canvassing, soliciting or enticing customers of the other party or employing specific individuals for a set time period. There may also be a defined geographical area.
Non-disclosure – Designed to protect confidentiality and commercially sensitive information, including business and trade secrets or information that delivers a competitive advantage
How Are Restrictive Covenants Enforced?
The first step is usually a letter of claim setting out the threatened or actual breach and potential losses incurred. A pre-action letter will also include a statement that failure to remedy will result in legal proceedings.
The threat of an injunction and the associated legal costs is often enough to deter a future breach or call a halt to a current contravention.
In a business situation, it may be necessary to apply to the court for an interim injunction to prevent a covenant’s likely or continued breach.
Ultimately, the court will decide whether a restrictive covenant in a commercial agreement is enforceable or not. The court will consider the clause’s meaning and whether the beneficiary has a legitimate business interest that requires protection.
The court will also examine whether the restrictive covenant is reasonable and proportional to the business interest it seeks to protect.
The final consideration is whether the restrictive covenant is contrary to the public interest.
An interim injunction can prevent further breach of the covenant until a full hearing is possible in court.
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How Can Helix Law Help?
We most often become involved in restrictive covenants when something has gone wrong, and a specialist litigation solicitor is needed to assist you in enforcing the rights. We also advise on clauses in contracts so that you are clear about where you stand.
Helix Law also offers targeted, strategic advice if you suspect a restrictive covenant is being breached or anticipate that a breach is likely. We are experienced in negotiating resolutions to often complex problems, and are well placed to assist with court proceedings if a claim or an injunction are necessary.
Why Choose Helix Law?
We are specialist litigation solicitors. Helix Law’s expert commercial team can protect your business interests — both in drafting restrictive covenants and defending them. You can rely on our specialist skills in commercial and property disputes, as well as employment contracts and employment law.
We act for businesses and individuals nationally and beyond in the negotiation and enforcement of restrictive covenants amongst other commercial and property-related litigation.
We offer clear, pragmatic, commercially astute advice.
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