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Can a restrictive covenant be removed from an employment contract?

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If a restrictive covenant is already in your employment contract, you can seek your employer’s consent to have it removed.  Depending on the reason, they could refuse this request or it may be removed by an Employment Tribunal if they determine it is unreasonable.  Our Employment team here review restrictive covenants in employment contracts, whether you can refuse to sign an employment contract including them and when a restrictive covenant could be removed. 

What are restrictive covenants?

Restrictive covenants are a clause or set of clauses in an employment contract or director’s service agreement which seek to restrict what you can do after termination of your employment.  You may be asked to sign an employment contract when you start a new position or when you are promoted which has restrictive covenants included, or you may be leaving your current role under a settlement agreement which includes restrictive covenants.

  1. New employment contract – if you are negotiating your employment contract for a new position and refuse to agree to the restrictive covenants your job offer could be withdrawn.  It is important that you have these discussions with your employer before you start as if you commence employment it could be implied that you have accepted them.  If you do not agree, then tell your employer straightaway, preferably in writing and continue to negotiate on this matter.
  2. Promotion - it is very common for an employee to be asked to sign a new contract once they have been promoted.  The new contract may include new or more extensive restrictive covenants. If you do not want to accept a change of contract you may continue to work for the employer but you must make sure you indicate that you are working under protest and that you do not accept the new terms. This will include any additional benefits, such as accepting private medical insurance or a company car. Acceptance is possible without signing but whether this has happened will be judged by looking at your conduct rather than your intentions.
  3. Settlement agreement - if you are negotiating a settlement agreement you are entitled to tell your employer that you do not accept the covenants and ask them to either amend or remove them altogether.  However, post-termination covenants are a common feature of many contracts and, ultimately, your employer might not be prepared to alter them. If however they are not included in the terms of an agreement, it is unlikely that they will be enforceable against you.

Removing unenforceable restrictive covenants

If you negotiate on any of the terms above then it may be possible to come to an agreement in which the restrictive covenants are removed from a contract of employment or a settlement agreement.

In order to remove covenants, both yourself and your employer will need to agree to these covenants being removed. It may be that you remove only part of a covenant instead of the whole clause. Any changes which occur to the covenants (whether this is removal in whole or in part) should be clearly documented and signed by both yourself and your employer to ensure that these are not enforced against you should you leave the business.

If however, you have moved to new employment and your previous employer believes you have breached the restrictive covenants that were in place in your contract, they could take you to the Employment Tribunal.  The Tribunal will rule as to whether the covenants are unreasonable, and therefore unenforceable, or whether they are reasonable and so you need to abide by them for the specified time.  If they are ruled to be unreasonable, the Tribunal can remove all or part of the covenant to make them enforceable.

This is referred to as the ‘blue pencil test’ and has three stages;

  1. The unenforceable part must be capable of being removed without needing to add to or modify the remaining words.
  2. The remaining terms must continue to be supported by adequate consideration - this will not normally be in dispute where enforcing a post-employment restrictive covenant.
  3. Removal of the provision or wording must not majorly change the overall effect of the entire clause.

Breaching your restrictive covenants is extremely serious, and so it is important that you seek legal advice if you have been asked to sign a contract with them included or if you receive notification that you have breached them.  To find out more about restrictive covenants click here, or contact the Employment team today on 023 8071 7717 or employment@warnergoodman.co.uk.

ENDS

This is for information purposes only and is no substitute for, and should not be interpreted as, legal advice.  All content was correct at the time of publishing and we cannot be held responsible for any changes that may invalidate this article.