Q. Are restrictive covenants enforceable in England and Wales?
The short answer is: yes, but only if they are carefully drafted and meet specific legal requirements. English law starts from the position that any clause restricting a person’s freedom to trade or work is prima facie void as contrary to public policy — it is a restraint of trade. A restrictive covenant will only be enforceable if the party seeking to enforce it can demonstrate that:
- It protects a legitimate business interest — such as goodwill, confidential information, customer relationships, or a stable workforce; and
- It goes no further than is reasonably necessary to protect that interest — in terms of its duration, geographic scope and the range of activities it covers.
Both requirements must be satisfied. A covenant that protects a legitimate interest but extends further than necessary will be struck out. A covenant that is proportionate but does not protect a legitimate interest will also fail. Reasonableness is assessed at the date the contract was made, not at the date of enforcement.
Courts approach covenants in commercial agreements (such as share purchase agreements) more generously than those in employment contracts, because a seller who has received a capital sum for goodwill is in a very different position to an employee who is simply trying to earn a living.
Q. What is the maximum length of a non-compete clause?
There is no fixed maximum length in English law. Whether a non-compete clause is enforceable depends on the specific facts and the context in which it arises — not on an arbitrary time limit.
However, the following general principles apply in practice:
- In a share purchase agreement, non-compete periods of two to five years are commonly upheld where the covenant relates to the goodwill that has been sold. The courts recognise that a seller who has received full value for goodwill should be bound not to immediately undermine what they have sold.
- In an employment contract, periods of six to twelve months for senior employees are most likely to be enforceable. Longer periods are not automatically void but face increasing scrutiny and require strong justification.
- In a shareholders agreement, the analysis depends on whether the covenant is more analogous to a commercial sale (more generous) or an employment arrangement (more restrictive).
What matters is whether the duration of the restriction is genuinely necessary to allow the protected party to establish and maintain the business relationships and confidential information that the covenant is designed to protect. A duration that exceeds this will be struck out in its entirety — courts cannot simply reduce it to an acceptable period.
Q. What is the difference between a non-solicitation and a non-dealing clause?
A non-solicitation clause prevents the restricted party from approaching or soliciting specified persons — typically former clients, customers or employees. It is a targeted restriction: if the former client or employee contacts the restricted party of their own initiative, the clause is not breached (though care is needed to ensure the initiative was genuinely unsolicited).
A non-dealing clause goes further: it prevents the restricted party from having any dealings with specified persons, whether or not the restricted party initiated the contact. Even if the former client approaches the restricted party first, a non-dealing clause would prevent them from proceeding with any business relationship.
Non-dealing clauses are broader and more difficult to enforce — courts scrutinise them closely because they restrict freedom of commerce even where the restricted party is entirely passive. To be enforceable, a non-dealing clause must be clearly justified by reference to the strength of the client relationship being protected and the risk of the restricted party exploiting their prior knowledge.
In practice, a combination of both is often used: a non-dealing clause in respect of the most important clients (where the relationship risk is highest) and a non-solicitation clause in respect of wider client and employee categories.
Q. Can a restrictive covenant be enforced when the employer has breached the contract?
This is a critically important question in employment law. In English law, where an employer commits a repudiatory breach of contract (i.e. a fundamental breach that entitles the employee to accept the breach and treat the contract as terminated), the employee may argue that the restrictive covenants in their employment contract have also fallen away.
The leading case of General Billposting Co Ltd v Atkinson [1909] established this principle. If the employee is wrongfully dismissed — dismissed without notice or in breach of their contract — and the dismissal amounts to a repudiatory breach, the post-termination restrictions in the contract may not survive.
This creates a significant practical risk for employers who dismiss employees without proper process or in breach of their contractual obligations. An employer who terminates employment in circumstances that could be characterised as a repudiatory breach may find that the very restrictive covenants they hoped to rely on are unenforceable as a result. Taking legal advice before terminating employment, particularly where valuable restrictive covenants are at stake, is essential.
Q. What remedies are available if a restrictive covenant is breached?
Where a valid restrictive covenant is breached, the innocent party has two principal remedies:
Injunctive relief — an application to the court for an injunction preventing the restricted party from continuing the prohibited activity. In urgent cases, an interim injunction can be sought without the other party being given advance notice (an ‘without notice’ or ‘ex parte’ application). The court will grant an interim injunction if there is a serious question to be tried and the balance of convenience favours restraint — often on the basis that damages would be an inadequate remedy.
Damages — compensation for the financial loss caused by the breach. Where confidential information has been misused or a client base has been poached, quantifying loss can be difficult. In some cases, damages are assessed on a ‘Wrotham Park’ basis — a notional royalty representing what the parties would have negotiated for release from the restriction — rather than actual proven loss.
The most effective remedy is almost always an interim injunction obtained quickly — before the competitive damage becomes entrenched. Delay in applying for an injunction can be fatal to the application, as it suggests the matter is not truly urgent. If you suspect a restrictive covenant is being breached, you should take legal advice immediately
