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Can a settlement agreement include a restrictive covenant?

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If you are offered a settlement agreement by your employer, depending on your role and the circumstances of you leaving the business, it is likely it will include restrictive covenants. There are several types of restrictive covenant that could be included; in this article, our Employment Law team explains each of them, what makes them enforceable and if you can negotiate the restrictive covenants with your employer before signing your settlement agreement.

 What are the different types of restrictive covenant?

There are various types of restrictive covenant depending on the action your former employer wishes to keep you from doing. They are:

  • Non-compete clauses - This restricts you from joining a competitor after you have left employment. The clause could state that you cannot work for a competitor within a certain distance of your former employer.
  • Non-solicitation and non-dealing clauses - This prevents you from enticing the employers’ customers or suppliers away after you have left. This should be limited to customers/suppliers that you were in direct contact with during your employment, although it can be extended to any ‘potential clients’ provided this is carefully defined in the settlement agreement.
  • Non-poaching clauses - This keeps you from approaching other employees to try and persuade them to leave your former place of work.
  • Confidentiality clauses – This clause makes it unlawful for you to divulge sensitive information about your former employer or their clients.

What makes a restrictive covenant enforceable?

To be enforceable, restrictive covenants need to be reasonable. Your employer will need to show that the restrictive covenant:

  • protects a legitimate business interest; and
  • that the covenant goes no further than necessary to protect that interest.

The most common business interests that the above restrictive covenants will aim to protect are:

  • Customer connections – your former employer will not want to lose their customers to you and your new employers. 
  • Confidential information – this would include details such as price lists or pricing structures for example.  If you were to take this information and share it with a new employer or use it as a basis for setting up your own business, you could have a competitive advantage. 
  • Stability of workforce – your former employer has an interest in ensuring that you do not poach remaining members of staff, which could lead to a loss of more customers as well as inconsistency for existing client accounts.

Can I negotiate the restrictive covenants?

If you already had restrictive covenants in your employment contract, your employer may be adding these covenants to a settlement agreement as they do not consider those in your contract to be comprehensive enough now that you are leaving the business.  This can put you in a powerful negotiating position, so before signing the settlement agreement, this may be a good opportunity for you or your solicitor to negotiate more favourable restrictions. You could ask:

  • that the restrictive covenants apply for a shorter period of time;
  • that you both agree to a specific list of companies that you will not work for, instead of a general restriction;
  • for a narrower geographical scope.

You could even ask to be completely released from the restrictions. The approach you should take will depend on how strong your negotiating position is, and is something that we can discuss with you and help you understand your rights.

To find out more about settlement agreements or if you have a settlement agreement you would like our Employment team to review, you can contact them today on 023 8071 7717 or employment@warnergoodman.co.uk.  Alternatively, you may find the following resources useful:

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.