Restrictive Covenant - enforceable?
Discussion
Background:
I joined my new employer on 1st August 2022 after a 3 month notice period with my previous employer (both financial services). There was an expectation of an initial induction & training period for new systems, processes and the like, and that I would be available to start seeing clients in mid to late November. I successfully passed all internal requirements during this period.
However on 22 September, (not long after training actually started after internal delays) all colleagues (including myself) were formally placed at risk of redundancy by Christmas due to a business restructure. 25% of the employees would be made redundant, no VR scheme available and those losing jobs would be selected as part of a desktop scoring exercise against various performance metrics. As a new starter, I had no history and was assigned "default" scores. The consultation period was to run until mid November 2022.
As a Plan B whilst formally at risk in the consultation period, I began speaking to external contacts in case I was selected for redundancy and I have also been offered a contract with them instead (again, financial services in the same sector).
I have now also been informed by my employer that I still have the role I was recruited for originally (provisional decision, as the team member that is losing their job instead has the right of appeal)
During the consultation period, I had also sought employment law guidance from a legal contact I have regarding the Restrictive Covenants contained within my employment contract, and in particular one clause which states in summary “You must not go to work for any of our competitors for a period of 6 months from the Notice Date”.
The initial legal guidance given to me in relation to this clause is that “in the context of the very short period of employment to date (in a resignation scenario), this length of restrictive covenant is unduly long and would be extremely difficult to enforce against an employee presently employed in an initial probationary period particularly when for the vast majority of the employment period to date, the employee has been formally placed at very real risk of redundancy and has had no meaningful client interactions. The six-month period of covenant would instead be more appropriate for a long serving employee in a key role with significant demonstrated history of client interaction"
I am fully aware covenants can and will be enforced by employers, but I believe my contact is being entirely honest when saying my chances of appealing the convenant are high but I thought I would open it up here as well - any different opinions
I joined my new employer on 1st August 2022 after a 3 month notice period with my previous employer (both financial services). There was an expectation of an initial induction & training period for new systems, processes and the like, and that I would be available to start seeing clients in mid to late November. I successfully passed all internal requirements during this period.
However on 22 September, (not long after training actually started after internal delays) all colleagues (including myself) were formally placed at risk of redundancy by Christmas due to a business restructure. 25% of the employees would be made redundant, no VR scheme available and those losing jobs would be selected as part of a desktop scoring exercise against various performance metrics. As a new starter, I had no history and was assigned "default" scores. The consultation period was to run until mid November 2022.
As a Plan B whilst formally at risk in the consultation period, I began speaking to external contacts in case I was selected for redundancy and I have also been offered a contract with them instead (again, financial services in the same sector).
I have now also been informed by my employer that I still have the role I was recruited for originally (provisional decision, as the team member that is losing their job instead has the right of appeal)
During the consultation period, I had also sought employment law guidance from a legal contact I have regarding the Restrictive Covenants contained within my employment contract, and in particular one clause which states in summary “You must not go to work for any of our competitors for a period of 6 months from the Notice Date”.
The initial legal guidance given to me in relation to this clause is that “in the context of the very short period of employment to date (in a resignation scenario), this length of restrictive covenant is unduly long and would be extremely difficult to enforce against an employee presently employed in an initial probationary period particularly when for the vast majority of the employment period to date, the employee has been formally placed at very real risk of redundancy and has had no meaningful client interactions. The six-month period of covenant would instead be more appropriate for a long serving employee in a key role with significant demonstrated history of client interaction"
I am fully aware covenants can and will be enforced by employers, but I believe my contact is being entirely honest when saying my chances of appealing the convenant are high but I thought I would open it up here as well - any different opinions
My advice here is worth what you are paying for it, particularly compared to the formal advice you have had. However, I did manage to get a similar covenant struck out when a company I was working with tried to renegotiate everyone's contracts. My arguement was that I had joined from other similar companies in the industry (engineering, not financial services) because I had the skill set they wanted and it woudl be unfair of them to prevent me joining other firms. The HR person agreed, saying it was actually "restraint of trade" and there was law against it. We agreed (possibly at a "gentleman's agreement" level, can't remember if anything was documented) that I wouldnt "take" clients with me if I left, but the principle of the clause didn't apply to me and I doubt it applies to you.
On a side note I'm surprised they are letting someone else go, not you. I know you're not supposed to do "last in first out" in these circumstances but they're not showing much loyalty to the other person. Time to dig an escape tunnel anyway?
On a side note I'm surprised they are letting someone else go, not you. I know you're not supposed to do "last in first out" in these circumstances but they're not showing much loyalty to the other person. Time to dig an escape tunnel anyway?
Given that you have only been there for 3 months it seems odd that they're retaining you and not somebody who has been there longer (I assume you would get next to nothing apart from notice period and the other person will at least get stat redundancy on top of their notice period).
In terms of restrictive covenant I assumed that applied mainly when the Employee chose to leave, not when they were sacked or made redundant. if they get rid of you (and don't pay you gardening leave) how the heck do they expect you to pay your bills if they restrict who you can work for?
In terms of restrictive covenant I assumed that applied mainly when the Employee chose to leave, not when they were sacked or made redundant. if they get rid of you (and don't pay you gardening leave) how the heck do they expect you to pay your bills if they restrict who you can work for?
Countdown said:
In terms of restrictive covenant I assumed that applied mainly when the Employee chose to leave, not when they were sacked or made redundant. if they get rid of you (and don't pay you gardening leave) how the heck do they expect you to pay your bills if they restrict who you can work for?
The situation is that I've now been told that I still have a job in the new structure (provisionally anyway, whilst they allow an appeal period for any affected employees) - had I been made redundant, I'd be free to go wherever I wanted. However, my point is that I've only been in the company just over three months, still in my own probationary period, yet could be held to 6 months gardening leave, which seems unduly long given the whole situation and the significant uncertainty they've put us all through in recent weeks. It would seem difficult for them to argue that if I resigned tomorrow for example, someone who has just joined and who has had no real contact with actual clients could be considered a key loss to them to warrant a 6 month covenant.
Edited by phope on Sunday 20th November 14:39
My sense is that technically this is enforceable - we aren’t talking 12 months plus, so not really preventing you earning a living. However, I think your short tenure means you have a good case for requesting a shorter or even zero period.
If you ask and they refuse, you could try and fight it legally, but if they chose to play hardball the chance is that it would take longer and cost more than it is worth.
My advice if they refuse is to request a tighter definition of “competitor” eg is there one or two particular companies they’d be keen for you to stay clear of?
If they still refuse, I’d be just tempted to get another job and see if they argue. If you don’t tell them they may not even know, and even if they did know, they may decide not to bother enforcing.
If you ask and they refuse, you could try and fight it legally, but if they chose to play hardball the chance is that it would take longer and cost more than it is worth.
My advice if they refuse is to request a tighter definition of “competitor” eg is there one or two particular companies they’d be keen for you to stay clear of?
If they still refuse, I’d be just tempted to get another job and see if they argue. If you don’t tell them they may not even know, and even if they did know, they may decide not to bother enforcing.
So you've had no contact with any of their database I.e. clients yet they want to legally enforce a contractual term restraining your trade?
This would fall into an unfair contract.
They are saying at this stage you still have a role but it's looking like you'll be let go?
Sorry. See unfair contracts. Surely you are still classed as in training to date.
In my last career legal threats of action was rife however beyond a letter threatening action little actual action was taken as a rebuke of restraint of trade was used and any business dealings and support any legal action to prosecute would need to be gained from a client. The definition of client/industry used effectively would have stopped me working at all.
The comment above really isn't helpful.
This would fall into an unfair contract.
They are saying at this stage you still have a role but it's looking like you'll be let go?
Sorry. See unfair contracts. Surely you are still classed as in training to date.
In my last career legal threats of action was rife however beyond a letter threatening action little actual action was taken as a rebuke of restraint of trade was used and any business dealings and support any legal action to prosecute would need to be gained from a client. The definition of client/industry used effectively would have stopped me working at all.
The comment above really isn't helpful.
Edited by Hugo Stiglitz on Sunday 20th November 17:53
I can only say that If I was in that position, and I wanted to go, I would tell the employer I want out and negotiate a fair notice term agreeable to both sides, say 1 month.
If they refuse and want to keep you to your contract then what exaclty are they going to do about it ?
I can't see anything being gained from suing you for breach of contract as they haven't suffered any material loss.
Similarly, I can't see wh they would want an unhappy employee around.
They might not give you a reference, but so what ?
If they refuse and want to keep you to your contract then what exaclty are they going to do about it ?
I can't see anything being gained from suing you for breach of contract as they haven't suffered any material loss.
Similarly, I can't see wh they would want an unhappy employee around.
They might not give you a reference, but so what ?
Update:
Handed in my notice yesterday morning, which has a standard 4 week notice period from me during probationary period until Feb 2023. Placed on immediate gardening leave until near Christmas, laptop & phone, etc all taken away, as you'd expect. I also made arrangements to hand back the temporary company car I had, which has been picked up today by hire company.
All very polite & professional on both sides. In my resignation letter, I had drawn their attention to the particular restrictive covenant and stated:
Handed in my notice yesterday morning, which has a standard 4 week notice period from me during probationary period until Feb 2023. Placed on immediate gardening leave until near Christmas, laptop & phone, etc all taken away, as you'd expect. I also made arrangements to hand back the temporary company car I had, which has been picked up today by hire company.
All very polite & professional on both sides. In my resignation letter, I had drawn their attention to the particular restrictive covenant and stated:
phpe said:
Legal opinion is that the chances of success of appealing against this covenant are very high in my favour, given the overall circumstances and the fact that I am in a probationary period. Respectfully, I must request to be released by COMPANY NAME from this covenant in my contract
Just had confirmation I won't be held to the covenant, so am free to start with new employer in early January with no obstacles phope said:
Background:
I am fully aware covenants can and will be enforced by employers, but I believe my contact is being entirely honest when saying my chances of appealing the convenant are high but I thought I would open it up here as well - any different opinions
They can be. The duration of your employment does not impact upon the covenant as such, albeit it would in my view encourage a court to find a way to not enforce it....I am fully aware covenants can and will be enforced by employers, but I believe my contact is being entirely honest when saying my chances of appealing the convenant are high but I thought I would open it up here as well - any different opinions
In part the question is always, is it worth their effort to sue you even if they find out?
But often I tend to simply look to negotiate with an employer i.e. the contract is enforced but not against X or Y companies if you have interviews coming up etc.. I would say speak to them and ask.
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