The great restructure: Restrictive covenants and confidentiality provisions in employment contracts

8th June 2022

Changes to the working world

The Covid-19 pandemic has enabled employees to realise, and properly utilise, the opportunity that remote working provides. Remote working has allowed employees to access new roles that were previously off limits as they no longer need to be geographically tied to their local area. This opportunity has enabled employees to move roles within their market and has been labelled ‘the great resignation’, however, many workers are moving roles to obtain a better work-life balance rather than merely resigning from their previous roles and taking advantage of new found flexibility in such roles. Therefore, some have preferred to coin this shift as ‘the great restructure’. However it is described, the importance of appropriately drafted restrictive covenants and confidentiality provisions has increased because of it.

Problems this causes

As more employees choose to move to different roles and many companies have sought to operate via different/less traditional working models, businesses are exposed to a number of risks including the possibility of an outgoing employee:

• Poaching colleagues;
• Soliciting clients;
• Setting up competitor businesses; and
• Taking/disclosing confidential information. [1]

New working models which may improve efficiency and profitability on the one hand, may also expose the employer to the risk of confidential information being extracted/disclosed more easily and of employees abusing new found flexibility/autonomy to set up in competition or seek out new roles.

Employees are subject to implied duties including a duty of fidelity and a duty to not misuse confidential information, however, the implied duties are limited after termination of the employment contract, therefore the risk related to the problems listed above increases.

To mitigate this risk, it is common for employers to include express terms which restrict an individual from taking certain actions/using confidential information that could detrimentally affect the business. Such terms are commonly referred to as restrictive covenants and confidentiality provisions.

Key Issues

Drafting

Restrictive covenants and confidentiality provisions, particularly in employment contracts, must be appropriately drafted in the first place to ensure that they can be enforced. Given the unequal bargaining position between employers and employees, courts often do not look kindly upon overly burdensome terms that bind an employee to unreasonable restrictions, therefore careful drafting is required to ensure any restrictions will be enforced.

Courts are also reluctant to enforce restrictive covenants that are either vague or broad, therefore the covenants must be well drafted and have clear and specific content.

Investigating/evidencing a potential breach

It is important to take advice as early as possible where you suspect there has been or will be a breach of such terms. Evidencing a breach and collating evidence in the right way (and so as to ensure it is admissible in court) is crucial. There may also be a requirement for detailed IT analysis to be undertaken and to collect/retain information/documents forensically. Walker Morris has the relevant expertise to assist with such exercises and to advise at all stages of any such litigation/potential litigation. In fact, please look out for our up and coming webinar on this topic which we are providing in conjunction with experienced forensic investigator John Holden of Smith & Williamson LLP.

How we can help

Gwendoline Davies, Nick McQueen and Jack Heward in our Commercial Dispute Resolution team have significant experience and expertise with advising in relation to disputes arising from restrictive covenants and confidentiality provisions. We can assist by:

• Conducting a health check of internal processes, policies, employment contracts and/or drafting contracts (or contract terms) with a view to protecting an employer as far as possible, with input from our specialist employment team;
• Reviewing current/relevant employment contracts in the context of a dispute and advising on the enforceability of terms and requesting and drafting undertakings from the relevant employee, where appropriate;
• Investigating and advising where there has been (or it is suspected that there will be/might be) a breach;
• Advising as to the available steps in such circumstances e.g. where it might be necessary to seek injunctive relief. We are also able to provide you with advice in relation to prospects of success and the risks/costs associated with any options available.

If you have any queries regarding these matters, please do not hesitate to contact Gwendoline, Nick or Jack.

[1]      For further information, see Walker Morris’s previous briefing titled ‘Protecting employers from breaches of confidentiality and restrictive covenant‘

Watch our webinar recording ‘How to investigate breaches by and protect your confidential information from ex/departing employees’ here.