Want to talk to an expert employment law solicitor?

You'll receive a callback from a specialist within an hour

In this article I’ll be look at whether restrictive covenants in settlement agreements (formerly known as compromise agreements) may be upheld in a court of law if the former employer seeks to enforce those covenants. We’ll therefore take a look at:

  1. What is a restrictive covenant?
  2. Why might restrictive covenants be contained in a settlement agreement?
  3. Will a restrictive covenant in a settlement agreement be upheld if an employer seeks to enforce it?
  4. Conclusion

What is a restrictive covenant?

A restrictive covenant – in a general context as well as specifically relating to employment law – is a promise not to undertake certain acts after your contract of employment terminates. This might, for example, be a promise not to compete with the former employer for a specified period after the employee leaves their employment or a promise not to “solicit” defined clients of the former employer.

Why might restrictive covenants be contained in a settlement agreement?

Restrictive covenants are normally relevant for senior employees or executives as they may have access to confidential information or trade secrets of their (former) employer, such as client lists or sensitive financial documents. Employers include such clauses in contracts of employment or settlement agreements to ensure that former employees do not unfairly compete with them after the termination of their employment.

The first thing that an employee should do if their employment with their employer is terminating is to check whether there are any restrictive covenants contained within their contract of employment. If so, then the covenants will apply unless the employer expressly agrees to waive those covenants in the settlement agreement. If not, then the employee has more scope to argue for the “watering-down” or removal of the restrictive covenants in their settlement agreement.

Will a restrictive covenant in a settlement agreement be upheld if an employer seeks to enforce it?

The fact that a restrictive covenant is in a settlement agreement (or compromise agreement) is likely to dispose the court towards enforcement of the restrictive covenant, even though the covenant will be examined by the court to determine whether the scope of the covenant is reasonable. There are a number of reasons why a restrictive covenant which is contained in a settlement agreement will dispose the court towards enforcement, including:

  1. Both parties in the settlement agreement will normally be legally represented (as a statutory settlement agreement is not valid if the employee does not receive legal advice from an independent adviser)
  2. The parties are able to better judge the reasonableness of a covenant at the termination of employment and are therefore in a potentially better position to negotiate the covenant
  3. The court may determine that the parties are no longer in an unequal bargaining position and the situation may be perceived to be more of a “commercial arm’s length transaction” (although in most settlement agreements the positions are still very much unequal!)

Conclusion

Employees who are currently in the process of negotiating a settlement agreement (whether or not they’re legally represented at the time of negotiation) should be extremely careful if there are res

About Chris Hadrill

Chris is a specialist employment lawyer at Redmans. He specialises in contentious and non-contentious employment matters, including breach of contract claims, compromise agreements and Employment Tribunal cases. He writes on employment law matters on a variety of websites, including Direct 2 Lawyers, Lawontheweb.co.uk, LegalVoice, the Justice Gap and his own blog. Contact Chris by emailing him at chadrill@redmans.co.uk

Want to talk to an expert employment law solicitor?

You'll receive a callback from a specialist within an hour

Share →

Our awards

Request a callback

Your name

Your email

Your telephone number

Contact us

Please feel free to discuss your own position and concerns. Contact your nearest office on:

T: 020 3397 3603
E: enquiries@redmans.co.uk
W: www.redmans.co.uk

Testimonials

4.63 Average

30 Reviews

Anonymous

Immediate response to my initial enquiry. Very clear throughout the whole process and thorough and great communication which worked really well during quite a stressful time. Chris Hadrill was extremely helpful and made me feel at ease.

Posted 2 months ago

Nick D

I received a very professional service from Chris. The advice given really helped to leave me comfortable to sign the settlement agreement following my redundancy. Would be happy to recommend your services to others.

Posted 2 months ago

Anonymous

Excellent service from initial contact to deliverables.

Posted 3 months ago

Virginia K

Yes, Chris Hadrill answered all my questions and I feel more confident with my current situation

Posted 3 months ago

Anonymous

Chris Hadrill was referred to me my a friend of mine. I found the service to be efficient, quick and like Chris's direct approach to my work. Well done and thank you Chris!

Posted 3 months ago

Andy W

Very prompt & structured service that helped put my mind at rest at a difficult time

Posted 3 months ago

Anonymous

I have found Redmans to be very helpful, diligant and thoroughly professional when dealing with them, plus they gone that extra mile for me !

Posted 3 months ago

Anonymous

Thank you to Chris Hadrill at Redmans for his assistance in settling my case. I contacted him at the very last minute and he was happy to help me and managed to get everything done on time and in a very professional manner. I will definitely be happy to work with him again .

Posted 4 months ago

Redman's provided excellent legal employment advice for me during a difficult time in my employment. Chris was my lawyer, super efficient, quick, reliable and clearly very experienced in the matter. Could not ask for a better law firm to deal with your query if you are in need of some help. Would definitely use them again in the future. Highly recommending Chris.

Posted 7 months ago

Steven

Chris Hadrill was very professional and responsive. I would highly recommend him

Posted 7 months ago

Dinah

Very Efficient, with very quick email reply’s. I had a matter that needed resolving within a very short space of time and Redmans Solicitors were great with dealing with my matter quickly.

Posted 8 months ago

Ankar

At Redmans the solicitor that was dealing with me was Chris. He dealt with my situation smoothly with clear guidance and explanation

Posted 8 months ago

Anonymous

Clear, concise advice and guidance delivered by an experienced and very capable solicitor, within the timelines required

Posted 8 months ago

Anonymous

Very efficient service. I never had to wIt for more than a day for a reply to any of my queries and the matter was dealt with swiftly.

Posted 8 months ago

Anonymous

Very timely, thorough and helpful advice. Friendly and considerate of the needs of the client

Posted 8 months ago

Anonymous

Very prompt and attention to detail. Thank you for the service

Posted 8 months ago

Chris

Couldn’t be happier with how Redmans successfully handled our seemingly tricky case. By being clear and detailed every step of the way, with the utmost professionalism and courtesy, they made it an informative and eye-opening process, taking the stress out of the situation and ultimately delivered what you would want from such a service. I fully appreciate everything they have done, and if I am ever in need of such services in the future, they will be the first number I contact. Excellent.

Posted 8 months ago

Anonymous

Excellent work delivered with great quality

Posted 8 months ago

Dominic

Chris Hadrill was a great help both in terms of his advice and his expertise. He explained my options to me clearly and concisely enabling me to quickly make the right decision for me in the circumstance. I would not hesitate to recommend Chris or Redmans to friends or colleagues, and would certainly make Redmans my first port of call should I require a similar service in the future.

Posted 8 months ago

Kurt

Redmans gave excellent advice and helped me understand everything in clear concepts. Thank you!

Posted 8 months ago

Anonymous

Resolved my issues

Posted 8 months ago