Why remote working makes enforceable restrictive covenants more important than ever
Remote working is here to stay, but could it facilitate an employee’s attempts to poach clients, solicit co-workers, or set up in competition? When it comes to drafting enforceable restrictive covenants, the stakes have, indeed, risen. So how can businesses protect themselves post-pandemic?
A “new normal”
The results are in. Hybrid and remote working practices are not going anywhere. For the millions of adults forced to work from home during the COVID-19 pandemic, time away from the office confirmed that a working life without long commutes, expensive takeaway lunches, or reduced time with friends and family was attainable.
Hardly surprising, then, that when COVID-19 restrictions finally eased, many workers did not jump at the opportunity to return to their desks five days a week and by 2022 the world of work had irrevocably changed.
This shift is reflected in the Office for National Statistics’ (ONS) latest figures, which reveal that the proportion of hybrid workers rose in 2022 from 13% in February to 24% in May. When surveyed, home workers cited numerous benefits, including an improved work-life balance (78%), greater efficiency (52%), and improved wellbeing (47%).
No longer always watching
Remote or hybrid working patterns also provide employees with a greater sense of autonomy. No longer confined to a single, pre-determined space under the watchful eyes of a senior colleague, employees can work wherever they choose, with the freedom to punctuate work with intermittent tasks unrelated to business activities.
This lack of oversight has made many employers nervous, with 33% citing effective line-management as a significant challenge of remote working, according to a survey by the Chartered Institute of Personnel Development (CIPD). The dining room arguably presents more opportunities for using confidential data to poach, solicit or set up in competition than the open-plan office did, leading many employers to review existing contractual protections and, where possible, strengthen their lines of defence.
What are restrictive covenants?
For most employers, restrictive covenants are the most useful tool for defending business interests. Although complex, they are a key area of law that protects an employer’s most important assets or confidential information when an employee leaves. Incorporated into an employee contract, restrictive covenants come in several different forms, including clauses that cover non-compete or non-solicitation of customers’ obligations.
The clause an employer uses will depend on an employee’s level of seniority and the requirements of their role. Overall, however, restrictive covenants can prevent a former employee or director from competing with their employer’s business, soliciting customers to their new enterprise, or poaching former team members.
Breaches and remedies
Restrictive covenants also provide numerous options for an employer, should an ex-employee choose to ignore them. Of course, an employer needs to have some foundation for their suspicions, which is arguably more difficult if an employee is remote. Anecdotal evidence, however, suggests that most breaches are reported by the customers and employees whom the ex-employee has approached.
If enforceable, restrictive covenants allow an employer to seek an injunction against the individual preventing further breaches, providing they have obtained evidence of a breach, as well as claim damages. Should an ex-employee continue to breach their restrictive covenants, they will be placed in contempt of Court, and could face an immediate custodial sentence.
Where an employer believes there is a tangible risk that an ex-employee has taken confidential information and may destroy any evidence, they may also be able to obtain a Search Order. This allows an employer’s solicitor to enter the individual’s home or new place of work ‘without notice’ to retrieve evidence or stolen confidential data. The power of such Orders cannot be underestimated. Last year, for example, we were able to recover stolen data from a mobile phone, despite the culprit’s attempts to destroy the evidence. The result? Our client recovered confidential data, while the ex-employee faced more than a year behind bars for contempt of court.
Making restrictive covenants enforceable
Using a restrictive covenant does not guarantee enforceability. Without careful drafting that considers an employee’s role, responsibilities, contacts and seniority, restrictive covenants risk being judged unreasonable – and therefore unenforceable – by the court.
Employers must carefully consider what would be reasonably necessary to protect their company and its key assets before drafting restrictive covenants. They must also remember that clauses are time-limited and should not extend beyond six months, or 12 months for more senior colleagues. Restrictive covenants can include location or territory, although this is less common today and may be deemed unreasonable if they prevent an employee from working from home in any capacity or role.
In addition, restrictive covenants must be regularly reviewed and updated if they are to remain effective. A restrictive covenant’s reasonableness is assessed from the time at which it was entered, making even the most carefully drafted clause useless if it covers an entry role, not a senior one. As mentioned, this is a complex area of law and should be approached with the help of legal experts, where possible.
A word on confidentiality
Most businesses use and store confidential data, whether that is the contact details of clients, or business forecasts. Without an express confidentiality clause in a contract of employment, the common law definition of confidential information – which only covers genuine trade secrets – will apply. As such, restrictive covenants should be complemented by an express confidentiality clause that clarifies any assets or data that an employee must return before leaving. It should also specify the data that must be kept confidential. Unlike restrictive covenants, confidentiality clauses do not come with a time limit.
Remote and hybrid working bring an array of benefits and challenges to an employer and employees alike. Mitigating the challenges, however, requires careful planning backed by strong legal advice. The most effective protection uses a mixture of up-to-date restrictive covenants and IT policies to ensure employees are accessing sensitive data responsibly, wherever that may be, and returning it to their employer before they leave. Done properly, this will both protect a business’ most valuable assets and harness the advantages of a hybrid working world.
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