Restrictive Covenant Agreement (Word & Fillable PDF)
When an employee leaves, the concern is often not simply that they are joining another employer, but what they may take with them, including customer relationships, confidential information, business connections or knowledge of how the organisation operates. A Restrictive Covenant Agreement can address specific post-employment restrictions, but in England the wording needs to be carefully matched to the business interest being protected.
Restrictive covenants are generally governed by common-law principles rather than a single statutory scheme, with the Supreme Court’s decision in Tillman v Egon Zehnder Ltd [2019] UKSC 32 remaining an important authority on employment restraints. Employers also need to consider whether a proposed restriction goes further than reasonably necessary to protect the relevant business interest. In practice, an overly broad clause may be challenged when an employee leaves and the employer seeks to enforce it.
Restrictive Covenant Agreement Template (PDF, Word & Printable Formats)
Before Asking an Employee to Sign a Restrictive Covenant
The first question should not be “What restrictions can be added?” It should be “What does the employer actually need to protect?” That distinction can determine whether a covenant has a realistic prospect of being enforced.
Decide What the Employer Actually Needs to Protect
A legitimate business interest may arise from:
- Confidential information and trade secrets
- Customer and client connections
- Supplier relationships
- Stability of the workforce
- Goodwill
- Other proprietary business interests
The restraint of trade doctrine means that a restrictive covenant is prima facie void unless it protects a legitimate proprietary interest and goes no further than reasonably necessary.
For example, an employee who has spent years developing relationships with particular customers may create a different protection issue from an employee whose role involves little customer contact. Using the same non-solicitation wording for both roles can create unnecessary problems.
A blanket restriction on future employment may also be harder to justify than a carefully targeted restriction addressing the particular client connections or confidential information at risk.
Existing Contract or New Standalone Agreement?
Some employees already have restrictive covenants incorporated into their employment contracts. Others may be asked to sign a separate agreement during employment.
That timing matters. The verified legal framework states that where a new agreement is signed under hand during an existing employment relationship, fresh consideration is required; continued employment alone is generally insufficient consideration for newly imposed covenants.
Fresh consideration might involve a promotion, salary increase or other contractual benefit. Where appropriate, the agreement may instead be executed as a deed, bringing the execution requirements under Section 1 of the Law of Property (Miscellaneous Provisions) Act 1989 into consideration.
Choosing the Right Restriction for the Employment Role
Not every employee requires the same type of restriction. The clause should correspond with what the employee actually does and what information or relationships they can access.
Non-Compete Restrictions
A non-compete restriction can seek to prevent an employee from working for a competing business for a specified period after employment ends.
This is a particularly restrictive form of covenant because it can affect the employee’s ability to work in their chosen field. The employer therefore needs to identify the business interest supporting the restriction and ensure that the scope is not wider than reasonably necessary.
The employee’s seniority, responsibilities, access to information and involvement with customers can all affect the drafting decision. A clause designed for a senior employee with substantial commercial influence should not simply be transferred to a junior employee whose role exposes them to far fewer protected interests.
Non-Solicitation and Non-Dealing Restrictions
A non-solicitation restriction focuses on approaching or attempting to obtain business from protected customers or clients. A non-dealing provision can go further by restricting dealings with specified customers.
The drafting should identify the relevant customer connection rather than automatically referring to every customer of the organisation. A restriction covering clients the employee never worked with can create an argument that the covenant extends beyond the interest requiring protection.
Non-Poaching Restrictions
A non-poaching clause may seek to prevent a former employee from recruiting colleagues after leaving.
Again, the restriction needs to reflect a genuine business interest. An employer should consider which employees the departing individual actually had influence over and whether the proposed restriction is wider than necessary.
How Long Should a Restrictive Covenant Last?
Duration should be considered alongside the business interest being protected. The verified legal facts identify defined temporal boundaries as an important drafting safeguard and give 6–12 months as an example of the type of period that may be considered, rather than a universal statutory limit.
The relevant period should therefore not be selected simply because another employment contract uses the same number of months. An employee who has access to rapidly changing customer information may present a different risk from someone whose knowledge remains commercially sensitive for a longer period.
The interaction with notice periods and garden leave also needs attention. If the employee has already been prevented from working for competitors during garden leave, the post-termination restriction may need to account for that period. The verified facts identify a garden-leave offset provision as an operational drafting safeguard.
The Wording Problems That Can Destroy an Otherwise Useful Covenant
Restrictive covenant disputes often turn on individual words rather than the general intention behind the agreement.
Overly Wide Geographic Restrictions
A geographical restriction should have a genuine connection with the business being protected. Worldwide wording may be difficult to justify where the employee’s actual commercial activities were limited to a particular market or territory.
The relevant question is not how much territory the employer would like to protect, but how much territory is reasonably connected to the legitimate business interest.
Restricting Clients the Employee Never Dealt With
A covenant that covers every company client can create a serious drafting problem where the employee only dealt with a small proportion of those customers.
The verified facts specifically identify an “all clients” approach as a potential excessive restraint. A more targeted definition can connect the restriction to customers with whom the employee actually had a relevant relationship during the specified period.
Minor Shareholdings and the Tillman Issue
The Supreme Court’s decision in Tillman v Egon Zehnder Ltd illustrates why apparently small pieces of wording can matter. The case concerned wording restricting an employee from being “interested” in a competing business and the effect of that wording on minor shareholdings.
The verified legal facts identify express carve-outs for permitted minor shareholdings as an important drafting safeguard. The case also considered whether offending wording could be severed without rewriting the agreement or changing its fundamental character.
When an Existing Employee Signs a New Restrictive Covenant
A common practical mistake is to treat the signing ceremony as the whole issue. It is not.
If an existing employee is being asked to accept new restrictions, the employer should consider what contractual consideration is being provided and whether the agreement should be executed as a deed. The verified legal facts identify salary increases, promotions and equity awards as examples of fresh tangible consideration.
Where a deed is used, execution formalities become important. Section 1 of the Law of Property (Miscellaneous Provisions) Act 1989 governs the execution of deeds, and the supplied legal facts specifically identify the need for an independent adult witness to observe and attest the signature.
HR records should also show how and when the restriction was agreed and what was provided in return where consideration is relied upon.
Restrictive Covenants, Garden Leave and Notice Periods
Garden leave and a post-termination restrictive covenant are not the same thing. During garden leave, the employee remains employed but may be prevented from performing their normal duties. A post-termination restriction operates after employment has ended.
This distinction matters when calculating the practical period during which the employee is prevented from competing or approaching protected contacts. The verified legal facts identify a set-off or garden-leave offset clause as a drafting safeguard where garden leave immediately precedes termination.
Before imposing additional restrictions, HR should therefore check the existing employment contract, notice provisions and any garden-leave wording. Otherwise, the employer may create uncertainty about when the restriction begins and how long it should operate.
What Happens When an Employee Leaves?
The departure stage is where a restrictive covenant moves from being a contractual provision to something the employer may actually need to rely upon.
HR Checks Before the Termination Date
Before the employee leaves, HR should:
- Review the employment contract and covenant
- Identify confidential information and company property
- Confirm relevant clients and business relationships
- Check garden-leave provisions
- Preserve relevant contractual and documentary evidence
The purpose is not simply administrative. If a dispute later develops, the employer may need to demonstrate exactly what contractual restrictions existed and what business interest they were intended to protect.
Reminding the Employee About Existing Restrictions
An employer may remind the departing employee in writing through a termination letter of continuing obligations and request the return of company property and confidential material..
Care is needed with termination correspondence, particularly where restrictions are being restated or new undertakings are proposed. The documentation should accurately reflect the contractual position rather than accidentally creating uncertainty about whether a new agreement has been introduced.
Where a payment is made specifically in connection with restrictive undertakings, the tax treatment should also be considered separately.
What If the Former Employee Breaches the Agreement?
A suspected breach can arise quickly after departure, particularly where the former employee joins a competitor or begins contacting customers.
Typical Breaches Employers Investigate
Common concerns include:
- Joining a direct competitor
- Contacting protected clients
- Taking confidential information
- Recruiting former colleagues
- Establishing a competing business
The employer should first identify the actual restriction that is said to have been breached. A general suspicion that an employee is “competing” is not necessarily the same as evidence of a breach of a particular covenant.
Evidence an Employer May Need
Relevant evidence may include:
- The employment contract and covenant
- Communications with clients
- Customer records
- Evidence of solicitation or dealing
- Confidential documents or data transfers
- Evidence connecting the alleged conduct to the employee
This becomes particularly important if urgent court relief is being considered. The employer needs to identify the contractual obligation and the conduct said to breach it rather than relying on broad allegations.
When an Employer May Need an Injunction
Where an alleged breach could cause immediate commercial harm, an employer may consider seeking an interim injunction through the High Court.
The verified legal framework identifies CPR Part 25 and Practice Direction 25A as relevant to urgent interim injunctions, alongside the principles from American Cyanamid Co v Ethicon Ltd. The three-stage approach identified in the supplied facts considers whether there is a serious issue to be tried, whether damages would be inadequate and where the balance of convenience lies.
The High Court is therefore materially different from an ordinary contractual dispute seeking damages. Timing and evidence can become critical where a former employee is due to start working for a competitor or contact customers.
The Tillman litigation demonstrates the practical significance of restrictive covenant enforcement and interim relief in an employment context.
Common Restrictive Covenant Mistakes and Their Consequences
Making the Restriction Too Broad
Problems can arise where a covenant:
- Covers every competitor
- Covers every customer
- Uses an excessive geographical scope
- Lasts for an excessive period
- Restricts activities unrelated to the employee’s position
The supplied legal facts identify overly broad restrictions as a major invalidation risk. English courts do not simply rewrite a poorly drafted covenant to make it commercially acceptable.
Copying a Covenant From Another Employment Contract
A covenant drafted for a senior director may contain restrictions that are difficult to justify for an employee with substantially less access to confidential information or customer relationships.
The employee’s actual role should therefore drive the scope of the restriction. Copying a clause without reviewing its original context can leave the employer relying on protections that are wider than the business interest actually requires.
Adding Restrictions After Employment Has Already Started
Adding new restrictions during an existing employment relationship requires particular care.
Potential problems include:
- Failure to provide fresh consideration
- Incorrect execution
- Poor documentary evidence
- Assuming continued employment automatically supports the new restriction
The supplied legal facts specifically identify continued employment alone as generally insufficient consideration for newly imposed covenants signed under hand.
UK Legal Facts About Restrictive Covenant Agreements
Legal Requirements Table
| Topic / Issue | England Legal Rule | Governing Law |
|---|---|---|
| Restraint of trade | A restriction is prima facie void unless it protects a legitimate business interest and goes no further than reasonably necessary | Common law; Nordenfelt / Tillman v Egon Zehnder |
| Execution | Where the agreement is executed as a deed, formal execution requirements apply | Law of Property (Miscellaneous Provisions) Act 1989, s.1 |
| Consideration | Fresh consideration is generally required where new restrictions are agreed under hand during existing employment | Common law contract principles |
| Severability | Unreasonable wording may only be severed where the relevant requirements are satisfied without rewriting the agreement | Tillman v Egon Zehnder Ltd |
| Interim injunction | Urgent enforcement considers serious issue, adequacy of damages and balance of convenience | CPR Part 25 / American Cyanamid |
| Confidential information | Confidentiality protections may intersect with restrictive covenant protections | Trade Secrets (Enforcement, etc.) Regulations 2018 |
Practical Legal Impact
These rules affect how the agreement is drafted from the beginning. The employer needs to identify the business interest first, then decide whether a non-compete, non-solicitation, non-dealing or non-poaching restriction is actually necessary.
Execution can become a separate issue where a new covenant is introduced during employment. Similarly, the potential for urgent High Court proceedings means that an employer considering enforcement should retain the original contract, signed covenant and evidence supporting the alleged breach.
The supplied legal facts also identify the importance of considering garden leave, geographical and temporal limits, permitted minor shareholdings and the consequences of an employer’s own repudiatory breach.
Restrictive Covenant Agreement vs Related Employment Documents
Restrictive Covenant Agreement vs Employment Contract
A restrictive covenant may already be incorporated into an employment contract or may be documented separately.
The key issue is not the document’s title but the contractual wording and the circumstances in which the restriction was agreed. A separate agreement does not automatically make a restriction more enforceable.
Restrictive Covenant Agreement vs Confidentiality Agreement
Confidentiality provisions protect information, whereas restrictive covenants may restrict competition, client solicitation, dealing or recruitment after employment ends.
The two protections can overlap, but they address different risks. An employer should not assume that a confidentiality agreement automatically provides the same protection as a post-employment covenant.
Restrictive Covenant Agreement vs Settlement Agreement
A Settlement Agreement may deal with restrictions as part of the termination arrangements. Existing covenants may be reaffirmed, or new restrictions may be negotiated in connection with the employee’s departure.
Where payment is connected specifically with restrictive undertakings, the payment and contractual wording should be considered together rather than treating the restriction as an isolated clause.
FAQ
Can an employer add a restrictive covenant after employment has started?
A new restriction introduced during existing employment raises consideration and execution issues. Continued employment alone is generally insufficient consideration for a new covenant signed under hand.
Can an employee challenge an overly broad restrictive covenant?
Yes. The restraint of trade principles require the restriction to protect a legitimate business interest and go no further than reasonably necessary. An excessively broad covenant can therefore face an enforceability challenge.
Can a restrictive covenant prevent someone from joining a competitor?
A non-compete can seek to restrict competing employment after termination, but the restriction must be considered against the legitimate business interest being protected and its scope. A blanket restriction is not automatically enforceable.
What happens if an employee breaches a restrictive covenant after leaving?
The employer may consider contractual enforcement and, where urgent relief is justified, an interim injunction through the High Court. The employer will need to identify the relevant covenant and provide evidence supporting the alleged breach.
Can an employer obtain an injunction to enforce a restrictive covenant?
An employer may seek urgent interim relief through the High Court. The relevant framework includes CPR Part 25 and the American Cyanamid principles, including the serious-issue, adequacy-of-damages and balance-of-convenience considerations.
