Restrictive covenants and safeguarding the commercial interests of your business

Continuing its Brexit series, Freeths LLP considers the positive steps that manufacturing businesses can take to safeguard their know-how and legitimate commercial interests in post-Brexit Britain.

Talented individuals continue to be a key driver to the growth of the manufacturing industry, accelerating innovation and developing businesses’ know-how. However, it is no secret that job mobility has increased rapidly over the past century and industry commentators expect Brexit to provide further momentum to this trend. It is therefore more important than ever for businesses,
particularly in the manufacturing industry, to take positive steps to safeguard their know-how and legitimate commercial interests.

Richard Coates

Safeguarding know-how and commercial interests

Restrictive covenants are now commonplace in employees’ contracts. In short, these covenants operate to protect employers’ legitimate commercial interests being damaged by departing employees misusing employers’ know-how in their new roles. As such, they are seen as a powerful tool for employers.

However, the inclusion of ‘standard-form’ restrictive covenants is often not enough and the Courts continue to send the message that ‘one size will not fit all’. If such covenants are to be enforceable, they must generally go no further than is necessary in the circumstances to protect the employer’s legitimate commercial interests. In other words, restrictive covenants must be reasonable. This can usually be achieved by considering the employer’s commercial interests which are to be protected and adapting the covenants to the specific circumstances of the relationship between the parties.

Enforcing restrictive covenants

In some cases, the enforcement of restrictive covenants is made necessary by the actions of the departing employee.

This has recently been demonstrated in the Courts. The defendant engineer was engaged by Dyson to develop an electric car. That engineer resigned in order to join a competitor, Tesla, in their
development of an electric car. Dyson successfully applied to the Court to enforce its restrictive covenant, with the Court finding that the restrictive covenant was reasonable in the circumstances
and that the engineer’s employment with Tesla would infringe that covenant. This Court case illustrates the value of restrictive covenants, particularly within the highly specialised automotive
industry.

When presented with potential or actual breaches of restrictive covenants, it is of vital importance that employers act promptly to identify and gather relevant evidence of the breach and how that
breach causes damage to its legitimate commercial interests.

Employers should also consider seeking legal advice at an early stage so that proactive steps can be taken to seek to enforce the covenants. Such enforcement can take a number of forms, whether
attempting to secure undertakings from the departing employee or making an urgent application to the Court for an injunction.
Proactively dealing with restrictive covenants

If you would like to discuss how you can take positive steps to review your use of restrictive covenants or if you would like advice on taking steps to enforce restrictive covenants, please call Richard Coates on 0845 128 7972 or alternatively email him at richard.coates@freeths.co.uk.