UK: Protecting Your Business: Restrictive Covenants

Last Updated: 17 August 2011
Article by Vanessa Hempstead

It has been said that business is about people and their relationships, and that is certainly true of the insurance workplace. The majority of insurance companies and brokers invest considerable time and money in building relationships with clients, brokers and suppliers. Unfortunately, it is often the case that when an employee leaves for a competitor, they will endeavour to use those established relationships and information gathered to try to take those clients with them. Furthermore, given the recent economic downturn, there is the temptation for competitors to obtain client contacts and their business by poaching a rival team.

Those in the insurance sector will be familiar with the concept of restrictive covenants in employment contracts. Restrictive covenants are an important consideration for inclusion in employment contracts, particularly for senior employees or those whose knowledge and contacts could damage the business if they leave employment. English law generally considers that with employment contracts there is unequal bargaining power, and the courts are therefore prepared to interfere with generally, vary, reinterpret or refuse to uphold certain aspects of employment contracts, such as restrictive covenants.

Types of Restrictive Covenants and why have them?

In the event that they are no restrictive covenants in an employment contract, there is the risk that a former employee may work in a competing area, entice clients and contacts as well as poach employees. In the absence of restrictive covenants, if there is a garden leave clause in the contract of employment the employer can require the employee to spend all or part of their notice period at home. During a period of garden leave, the employee will be entitled to receive salary and benefits. Such clauses are useful for employers as they create a time during which the employee will not have contact with clients and colleagues or have access to confidential information, thereby reducing the risk of the employee damaging the employer when finally leaving. Garden leave clauses must be expressly agreed in the contract and are also subject to the test of reasonableness, but they provide limited protection.

So as to avoid any uncertainty when an employment contract ends, it is best to ensure that the contract contains certain restrictive covenants to protect the employer's business. For maximum protection, it is advisable to have an express garden leave clause in the contract as well as restrictive covenants.

There are many types of restrictive covenant, but the most commonly used are:

  • Non-competition: Restricting the employee from working for a competitor;
  • Non-solicitation of clients or potential clients: Restricting the employee from approaching or seeking business from clients or potential clients of the company's business;
  • Non-dealing with clients or potential clients: restricting the employee from dealing with clients or potential clients even if they approach the employee;
  • Non-poaching of employees: this prevents the employee from recruiting other employees from the company's business.

Further, the employment contract should also have carefully drafted confidentiality obligations on the employee, to prevent the employee from misusing confidential information of the business or its client and contacts.

Enforceability of Restrictive Covenants

It is important to ensure that the restrictive covenants in the employment contract are enforceable, otherwise they will not offer the desired protection. Therefore, restrictive covenants need to be drafted carefully and with the specific legitimate proprietary interests of the business that the company needs to protect in mind. On public policy grounds, Courts will only uphold restrictive covenants which are no wider than is reasonably required to protect the legitimate business interest of the employer.

Therefore, the drafting of the restrictive covenant is crucial. The Courts take the view that they are a restriction on the individual and so it is important that a company drafts the restrictive covenants appropriately taking into consideration the employee's role and seniority. "One-size-fits-all" covenants are the most likely to be found to be unenforceable by the Courts. The covenants will also need to carefully define who competitors, clients and employees are, as inadvertently wide definitions can undermine the whole covenant.

Traditionally, non-compete covenants have been viewed as difficult to enforce, since they are generally considered wider than necessary to protect the employer's interests. However, a recent trend in case law has developed where the Court upholds non-compete covenants based on a number of themes, which prudent employers should be looking to include in their contracts. For example, the longer the covenant the less likely it will be enforceable and that applies to all types of restrictive covenants.

Enforcement of breach of restrictive covenants

In the event an employer obtains evidence that an employee has acted in breach of their covenants (for example, in the event a client confirms they have been contacted), then the employer can consider a pre-emptive and decisive measure to threaten the former employee and seek an injunction to prevent further breach and/or damages. In certain circumstances, the new employer can also be brought into proceedings for inducing the individual to breach their contract. However, this is a notoriously difficult claim to prove.

Irrespective of the type of claim, however, it is imperative that the employer acts swiftly when it suspects a breach. This is especially pertinent if the employer wishes to obtain an injunction.


Often the most practical value of restrictive covenants is in their ability to deter an employee from using confidential information, or seeking to poach clients or employees. Given the competitiveness in the insurance market and the need to protect clients and business contacts, for all those senior employees or employees with a client-facing role, restrictive covenants are a necessity to protect the business from poachers. However, restrictive covenant clauses in contracts need to be drafted carefully to ensure that they will be upheld in the event of a breach.

The contents of this article are intended as guidelines for clients and other readers. It is not a substitute for considered advice on specific issues. Consequently, we cannot accept any responsibility for this information or for any errors or omissions.

Thomas Eggar LLP is a limited liability partnership registered in England and Wales under registered number OC326278 whose registered office is at The Corn Exchange, Baffin's Lane, Chichester, West Sussex, PO19 1GE (VAT number 991259583). The word 'partner' refers to a member of the LLP, or an employee or consultant with equivalent standing and qualifications. A list of the members of the LLP is displayed at the above address, together with a list of those non-members who are designated as partners. Regulated by the Solicitors Regulation Authority. Lexcel and Investors in People accredited.

Thomas Eggar LLP is not authorised by the Financial Services Authority. However, we are included on the register maintained by the Financial Services Authority so that we can carry on insurance mediation activity which is broadly the advising on, selling and administering of insurance contracts. This part of our business, including arrangements for complaints and redress if something goes wrong, is regulated by the Solicitors Regulation Authority. The register can be accessed via the Financial Services Authority website. We can also provide certain further limited investment services to clients if those services are incidental to the professional services we have been engaged to provide as solicitors.

Thesis Asset Management plc, our associated financial services company, provides a comprehensive range of investment services and advice. Thesis is owned by members of Thomas Eggar LLP but is independent of and separate to it. No lawyer connected with Thomas Eggar LLP provides services through Thesis as a practicing lawyer regulated by the Solicitors Regulation Authority. Thesis is authorised and regulated by the Financial Services Authority. Thesis has its own framework of investor protection and professional indemnity cover but Thesis clients do not enjoy the statutory protection of solicitors' clients.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions