Time to review employment restrictions

At Early Years Equality, we know that restrictive covenants are coming more to the fore in national employment debates across the early years sector.

In these days of austerity there are pressures on employers with regard to recruitment and market competition, and in some sections of the sector, restrictive covenants are being deployed as part of contractual arrangements.

We recognise that every early years business (private, voluntary, co-operative or statutory) has information that employers might consider to be both integral and invaluable to their success.

We want to encourage the sector, therefore, to review their positions on restrictive covenants. Employers might put certain terms in employees' contracts, which they consider may provide some level of protection for the employer whilst the employee's employment continues.

Employers may be seeking to protect the use of this information both during employment and after the employment ends through the use of these restrictive covenants. There are some employers, it is understood, who are applying these restrictive covenants to all staff, in their employ and ex-employ too.

A restrictive covenant is typically a clause in a contract which prohibits an employee from competing with his ex-employer for a certain period after the employee has left the business, or prevents the ex-employee from soliciting or dealing with customers of the business by using knowledge of those customers gained during his prior employment. 

The starting point for any such post-termination restriction is that it is void on the grounds that it is a restraint of trade and contrary to public policy. It follows that an employer is generally not entitled to protect himself against competition from his ex-employees. However, if the ex-employer can convince a court that the covenant is:

• designed to protect his/her legitimate business interests; and
• that it extends no further than is reasonably necessary to protect those interests then it will be upheld and enforced. 

A non-compete clause may be enforced to protect a legitimate business interest – for example, client connections, confidential information or a stable workforce – and not simply to stifle or prevent competition. 

Types of restrictive covenants 

The standard types of restrictions which are being  used in some instance by employers in some areas of the early years are: 

• non-competition covenants - restrictions on the former employee working in similar employment for a competitor;
• non-solicitation covenants – which prevent poaching of clients/customers/suppliers of the former employer;
• non-dealing covenants – which prevent a former employee from dealing with former clients/customers/suppliers, regardless of which party approached the other;
• non-poaching covenants – which prevent an employee poaching former colleagues. 

It will be for the early years sector employer, in the event of a clause being challenged, to show that the clause is justified and sufficiently narrow. To meet these criteria an employer must be mindful of certain factors:

• The breadth of the geographical area of any restriction and the length of time of the post termination restriction must be justified. It is unlikely that a wide geographical area will be justified and, as a general rule, a restriction for more than 6-12 months will be difficult to justify.
• The breadth of the activities that the employer is trying to restrict.
• Regard will also be had to the type of interest being protected, for instance, information such as trade secrets may be granted wider protection than customer information, given that its potential use across markets is wider.
• An employer may also be required to evidence any connection between the employee and any information that is being protected.

It is important for employers in the early years sector to understand their business objectives from the outset. Employers should consider what they want to achieve and the commercial implications of taking a particular stance in relation to publicity, client relationships, management time and cost.

There is of course too, the very important matter of considering the reasonableness of restricted covenants, for example those that some employers might be considering imposing upon nursery assistants, room leaders and others not in strategic lead positions which might not lead to potential competitive breaches. Doing so, especially in these days of austerity, means that geographical restrictions, for example, might impede an ex-worker from getting another job, due to costs, distance etc being specified in restrictive covenants.

Matters of reasonableness and fairness are important guides in all employment deliberations in the early years sector.

• See our news story on restrictive clauses