If you have come across a non-compete clause, a non-solicitation restriction, or a similar term in an employment contract, shareholder agreement or the sale of a business, you are dealing with a restrictive covenant. This guide explains what these clauses do, when they are enforceable under UK law, and what businesses and individuals should check before signing or relying on one.
What Is a Restrictive Covenant?
A restrictive covenant is a clause that limits what a person or business can do, usually once a relationship has ended. They appear most often in employment contracts, but also turn up in shareholder agreements, partnership agreements, settlement agreements and business or share sale agreements. The purpose is almost always the same: protecting a legitimate business interest, such as client relationships, confidential information or a stable workforce, once the person who had access to that interest has moved on.
The Four Main Types of Restrictive Covenant
• Non-Compete: prevents someone working for a competitor or setting up a competing business for a set period and within a defined area.
• Non-Solicitation: stops a departing employee, partner or seller approaching clients, customers or suppliers to move their business elsewhere.
• Non-Dealing: goes further than non-solicitation, preventing any dealing with former clients even where the client makes the first approach.
• Non-Poaching: stops someone recruiting former colleagues or contractors away from the business.
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When Are Restrictive Covenants Actually Enforceable?
UK courts start from the position that restrictive covenants are a restraint of trade, and therefore unenforceable, unless the business relying on them can show two things. First, that the covenant protects a genuine business interest, such as trade secrets, client connections or workforce stability, rather than simply trying to prevent competition itself. Second, that the restriction goes no further than reasonably necessary in its duration, geographic scope and the range of activities it covers. A covenant that is too broad in any of these areas, risks being struck out entirely, rather than simply narrowed down by a court, which is why the drafting matters as much as the intention behind it.
Restrictive Covenants Beyond the Employment Contract
Employment contracts are the most common place restrictive covenants appear, but they are just as relevant, and often just as poorly drafted, in shareholder agreements, partnership agreements and business sale agreements. A shareholder agreement without a properly drafted non-compete clause can leave a company exposed if a shareholder leaves to set up a rival business. In a business sale, buyers typically insist on restrictive covenants preventing the seller competing with the business they have just bought, since the price paid usually reflects goodwill the seller could otherwise walk away with and rebuild elsewhere.
Drafting Restrictive Covenants That Actually Hold Up
The single biggest mistake businesses make is copying a restrictive covenant from an old template or another company’s contract without checking whether it fits the role or the relationship. A covenant that made sense for a senior sales director rarely fits a junior administrator, and a court will not rewrite an overreaching clause to make it reasonable. Getting the scope, duration and geography right for the specific role or relationship at the point of drafting is far more effective, and far cheaper, than trying to enforce a badly drafted covenant later. Our solicitors advise Manchester and UK businesses on drafting covenants that are proportionate to the role, and on reviewing existing agreements before a dispute arises rather than after.
What Happens If a Restrictive Covenant Is Breached?
Where a business believes a restrictive covenant has been breached, options typically start with a formal letter setting out the breach and what is required to remedy it, which resolves many situations without further action. Where that does not work, a business can seek an injunction to stop the ongoing breach, alongside a claim for damages for any loss caused. Because injunctions need to be sought quickly to be effective, and because a poorly drafted covenant can undermine the whole claim, getting early advice matters more than in most other contract disputes.
How MAR Legal Can Help
Our solicitors advise businesses on drafting restrictive covenants that are proportionate to the role and likely to hold up if challenged, across employment contracts, shareholder agreements, partnership agreements and business sale agreements. We also advise individuals who are unsure what a covenant in their own contract prevents them from doing, and businesses who believe a covenant has been breached, including the pre-litigation steps available before court action becomes necessary.
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Final Thought
Restrictive covenants are only as good as their drafting. A covenant that is too broad protects nothing, because it will not survive a challenge, and a covenant that is too narrow leaves the business exposed regardless of what it says on paper. Getting the balance right at the point of drafting, whether in an employment contract, a shareholder agreement or a business sale, is worth far more than relying on a covenant that has never actually been tested.