The main types
| Covenant | What it stops | Typical length |
|---|---|---|
| Non-compete | Working for or setting up a competing business | 3 to 12 months |
| Non-solicitation of clients | Approaching the employer's clients for business | 6 to 12 months |
| Non-dealing | Doing business with those clients even if they approach you | 6 to 12 months |
| Non-poaching | Recruiting former colleagues | 6 to 12 months |
| Confidentiality | Using or disclosing trade secrets and confidential information | Indefinite |
How a settlement agreement deals with them
There are three common approaches.
- Reaffirmation. The agreement says the covenants in your contract continue to apply. This is the usual position.
- New or extended covenants. The employer adds restrictions you were not previously bound by, typically for a separate payment.
- Release. The employer waives some or all restrictions, often in redundancy where it has little interest in enforcing them.
Reaffirmation deserves more thought than it gets. A covenant in an old contract might be unenforceable, for example because it was reasonable for a junior role but you were later promoted without signing a new contract, or because the employer is in breach. Agreeing to it afresh, with legal advice and for payment, can strengthen the employer's hand.
Are they enforceable?
A covenant is void as a restraint of trade unless the employer shows:
- a legitimate business interest to protect, such as client connections, confidential information or a stable workforce; and
- that the restriction is no wider than reasonably necessary in what it covers, where it applies and how long it lasts.
Reasonableness is judged at the time the covenant was agreed. Courts will not rewrite an over-wide clause, though they can sometimes strike out a separate offending part.
If the employer dismisses you in breach of contract, for instance by ending your employment without notice where it has no right to pay in lieu, the covenants generally fall away. A settlement agreement is designed to avoid that argument, which is one reason employers reaffirm.
Garden leave
If you spend your notice on garden leave you are already out of the market. Most modern contracts deduct garden leave from the covenant period. If yours does not, ask for the settlement agreement to do so. See notice pay and garden leave.
Negotiating restrictions
- Ask for covenants to be waived altogether if you are redundant. An employer saying your role no longer exists has a weak case for stopping you doing it elsewhere.
- Ask for a specific carve-out: "nothing in clause X prevents the employee from accepting employment with [named company]".
- Narrow the client list to those you dealt with personally in the last 12 months.
- Shorten the period, or have it run from the date garden leave began.
- If new covenants are added, ask for meaningful payment.
Tax on covenant payments
A payment for entering into restrictive undertakings is taxed as earnings in full, with National Insurance, and cannot use the £30,000 exemption. That is why agreements often allocate only a nominal sum to it. See tax on settlement agreements.
Before you accept a new job
Get the covenants reviewed against the specific role. Tell your new employer about them. Do not take client lists, contacts or documents with you. Misuse of confidential information is easier for an employer to prove than a covenant breach and is often what leads to an injunction.
Frequently asked questions
Are non-compete clauses enforceable in the UK?
They can be. A court asks whether the employer has a legitimate interest to protect and whether the scope, area and length are reasonable. Long or blanket non-competes for junior staff often fail.
Can I ask to be released from my restrictions?
Yes. It is a common request and costs the employer nothing in cash. Ask for a written waiver or a carve-out naming the role you want to take.
What happens if I breach a covenant?
The employer can apply for an injunction to stop you and claim damages. Your new employer can also be sued for inducing the breach.
Is there a legal limit on how long a non-compete can last?
At the time of writing there is no statutory cap. Reform has been consulted on, but courts still judge each clause on reasonableness.
Sources
About this guide. This page is general information, not legal advice, and reflects the law and published government plans on the date shown above. Frederick George is a legal referral service, not a law firm. For advice on your own circumstances we will introduce you to an SRA-regulated solicitor.