Employer’s Guide: Restrictive Covenants
In the design industry, employers can face the challenge of protecting their business interests when key senior employees depart, particularly concerning the potential risks associated with client poaching, staff recruitment, and the use of sensitive business information.
This is where restrictive covenants come into play, serving as essential tools to safeguard the company’s intellectual property, client base, and internal talent. By understanding the intricacies of these covenants, employers can effectively mitigate potential threats while maintaining a positive and respectful relationship with their former employees.
What is a restrictive covenant?
It’s a clause in a contract prohibiting an employee from competing with an ex-employer. There are other types of restrictive covenants, but we’ll focus on clauses included within employment contracts in this article.
They usually last for a set period of time after the employee leaves the business. Depending on the type of clause, it can restrict employees from dealing with your customers, or from poaching employees.
Within the design industry, restrictive covenants are more commonly used for senior hires, but they offer protection for entry level roles as well.
Restrictive covenants in employment contracts
There are five types for use in employment contracts and documentation. These are:
1. General confidentiality: It’s unlawful for the employee to divulge sensitive information about you or your clients.
2. Non-competition: Prohibits the employee from working at a competitor or setting up on their own in the same field.
3. Non-poaching: Prevents the staff member from poaching former colleagues/current staff from your organisation.
4. Non-solicitation: Prohibits the employee from poaching your clients, customers and suppliers.
5. Non-dealing: The employee can’t deal with your clients, customers, or suppliers, even if they didn’t approach them first.
DBA members can download the rest of the Restrictive Covenants Guide, which explores:
- How long a restrictive covenant should be in place post-employment
- Enforcing restrictive covenants
- Breach of restrictive covenant
- How to stop an ex-employee who wants to poach staff
- An example of a restrictive covenant clause
- Details on how to access more support
HR helpline for DBA members
DBA members can contact a helpline provided by Croner to benefit from free HR advice, as part of your DBA membership. Call 0844 561 8133 and quote the DBA member reference code, which can be found here.
Take a look at some of the questions the helpline is asked by small, medium and large businesses: FAQs.
*This guide was published by Croner in November 2023. For the latest HR resources and employment law guidance visit Croner’s website.