Legal Information Centre

22 October 2012 by Patrick Tiernan

Renewing restrictive covenants

Companies need to update restrictive covenants when an employee is promoted.

A restrictive covenant must be judged at the time it is entered into, not at the time when the employer seeks to enforce it, a recent case has found.

The finding comes in a decision by the High Court in Patsystems Holdings v Neilly which dealt with an employee with a  12 month contract signed in 2000.

The court found that if Mr Neilly had signed a fresh covenant when he was promoted in 2005, either by asking fresh acceptance to the covenant or signing a new contract containing the provision, it may have been enforceable. However, the letter he signed on the promotion could not be accepted as an agreement to reinstate a contractual term which was in fact void.

According to Clare Murray of employment law firm CM Murray, the general principle for a restrictive covenant to be enforceable is that   it must be no wider than is reasonably necessary to protect the emplyoer’s  legitimate interests.

Employers should keep restrictive covenants under regular review and when a promotion is made, a fresh restrictive covenant should be agreed.  Nor should companies use a “one size fits all” approach for different employees.  She added that companies should also be aware that a breach of the contract by the employer could lead to covenants not being enforceable at all. 


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