When you hire employees, you entrust them with knowledge and access that could potentially harm your business if misused. Employment contracts, beyond covering basics like pay and duties, can include clauses to protect your company’s interests both during and after employment. The main types of protective clauses are confidentiality, intellectual property, and restrictive covenants (like non-compete and non-solicitation clauses). Here’s how they work:
- Confidentiality (Non-Disclosure) Clause: Virtually every employment contract should have a confidentiality clause requiring the employee to keep the company’s confidential information secret, both while employed and after leaving. This covers things like customer lists, pricing, business strategies, technical know-how, formulas, financial data, upcoming product designs, etc. The clause will define “Confidential Information” broadly (excluding public info or trivial knowledge) and oblige the employee not to use or disclose such information outside the course of their work. It usually also requires them to return or delete any confidential materials upon leaving. While the law (and implied duty of fidelity) already gives some protection (and for trade secrets there are legal remedies), having it in the contract makes expectations clear and gives you a contractual right to sue if needed. It’s a strong deterrent because the employee signs and acknowledges it. If later you suspect they’ve shared secrets with a competitor, you can point to this clause in pursuing legal action.
- Intellectual Property (IP) Rights Clause: If your employees create things as part of their job (designs, code, content, inventions), UK law says that intellectual property created in the course of employment belongs to the employer by default. However, it’s wise to reiterate this in the contract. Typically, an IP clause states that any inventions, works, or designs developed by the employee in performing their duties will be the company’s property, and the employee is required to sign any documents to formally assign rights or assist in protecting those IPs (like signing a patent application). This way, there’s no ambiguity about ownership of that new software module or marketing copy they produced – it’s the company’s asset.
- Restrictive Covenants: These are clauses that restrict an employee’s activities for a period of time after leaving the company. The most common types are:
- Non-Competition (Non-Compete): Prohibits the ex-employee from joining or starting a competing business for a certain period (e.g., 3 months, 6 months, sometimes up to 12 months) within a certain geographical area or market. For example, if you’re a local accounting firm, you might say “for 6 months after leaving, the employee shall not engage in accounting services business within 20 miles.” The purpose is to prevent immediate direct competition using knowledge gained from your firm. However, non-competes are the most sensitive and hardest to enforce in UK law – courts view them as a “restraint of trade” and will only enforce if they’re no more restrictive than necessary to protect legitimate business interests. That means the duration, geographic scope, and scope of activities must be reasonable. For instance, a 12-month nationwide ban for a junior employee might be deemed excessive, whereas a 6-month city-wide ban for a senior manager with deep client relationships might be upheld. Note: The UK government has discussed limiting non-competes (at one point proposing a 3-month limit), but as of now they are still allowed if reasonable.
- Non-Solicitation: Prevents the ex-employee from soliciting or poaching your clients or customers for a competitor or new business. For example, if they leave and join another firm, they shouldn’t actively approach your clients they dealt with to lure them away. This is easier to enforce than a broad non-compete because it’s narrower (focused on those customers you have a relationship with). Typically lasts maybe 6-12 months.
- Non-Dealing: A slightly stronger form related to clients – even if the ex-employee doesn’t solicit, they agree not to deal with any of your clients (whom they worked with) for that restricted period. This covers the scenario where a client approaches them. Non-dealing offers broader protection but is still focused on your client base.
- Non-Poaching of Employees: Prevents the ex-employee from recruiting or enticing away your other employees for a certain time. This stops a departing employee from taking half your team with them to a competitor. Usually also 6-12 months and limited to those employees they had contact with or senior staff.
These covenants must be tailored carefully – too broad and a court will void them entirely. A well-drafted covenant defines key terms (like “Restricted Customers” as ones the employee dealt with in the last 12 months of employment, etc., “Restricted Competitor” maybe defined by industry). If enforceable, they give you the ability to get an injunction (court order) against the ex-employee and potentially their new employer to stop the breaching behavior, and/or sue for damages if you lost business due to the breach.
- Enforcing Restrictive Covenants: It’s one thing to put these clauses in a contract, another to actually enforce. UK courts will enforce reasonable covenants that protect legitimate interests like trade connections (client relationships) or confidential information or a stable workforce. They won’t enforce if it’s just to prevent competition for its own sake. When drafting, consider: what specific harm am I trying to prevent? If customer relationships are key, a non-solicit might suffice. If the employee truly has unique knowledge (like secret sauce formula or strategic plans) that any competitor would love, a narrowly-drawn non-compete might be justified. Also, keep duration as short as needed – often 3-6 months can be enough because in many industries clients will decide on their new provider by then or info gets outdated. And geographic scope – if you only operate in one city, don’t ban them from working nationwide.
In practice, many disputes get settled without court. Sometimes just reminding the ex-employee of their covenants and perhaps sending a letter to their new employer (if they went to a competitor) that they’re under these obligations can deter bad behavior. New employers often ask candidates if they’re under any restrictions and might even negotiate a delayed start or role tweak to avoid litigation.
- Garden Leave: Another protective measure written into some contracts – this isn’t a post-employment covenant, but rather a clause allowing you to place the employee on garden leave during their notice period. That means if they resign (or you give notice), you can have them stay away from work (and “tend their garden”) while still on payroll and employment. This prevents them from accessing fresh confidential info or interacting with clients in that sensitive period, while also stopping them from immediately jumping ship to a competitor (as they are still contractually employed for the notice duration). Garden leave combined with non-compete effectively lengthens the time they’re out of the market (e.g., 3 months garden leave + 3 months non-compete = 6 months total). Always pay full salary/benefits during garden leave, and make sure the contract gives you the right to assign no duties and cut off access. Many senior employment contracts include this.
- Training Costs Repayment: Not exactly confidentiality, but another protective clause you might consider is if you invest in expensive training for an employee (like costly certifications or courses), you can have a clause requiring them to repay some of the cost if they leave within a certain time after the training. This protects the business from sponsoring someone’s qualification only for them to immediately use it at a new job. Such clauses must be reasonable and often on a sliding scale (e.g., if they leave within 6 months, repay 100% of course fees; leaving 6-12 months after, 50%; after 12, nothing). This would be enforceable as a contract debt if clearly agreed.
Implementing these protections: Make sure the employee signs the contract before or at start of employment (especially for covenants, as adding them later requires new consideration or a promotion etc.). It’s much easier to agree on these upfront. Senior hires will sometimes negotiate the scope (maybe they refuse a non-compete or narrow it). That’s a business decision for you, but remember any enforceable covenant must be no wider than necessary.
Also, consider combining approaches: For example, for key staff, you might rely on a combination of garden leave and non-solicitation of clients, which can be highly effective without needing a strict non-compete clause. Or you might require they give longer notice (which gives you time to prepare clients for the departure and secure relationships).
British Contracts provides bespoke contracts that include custom confidentiality and IP clauses, as well as post-termination restrictions. Purchase our Gold or Platinum package for our full contract drafting service, or select a Bronze or Silver package to have us review and report on an existing contract you are currently using.
Finally, note that while contracts are crucial, practical steps matter too: maintain good access control on sensitive data, remind departing employees of their obligations in an exit interview, and have good relations with clients so they’re less likely to be poached. Contracts give you the legal teeth to back that up if someone does breach trust.