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Restrictive Covenants

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Introduction

Restrictive Covenants In the situation described in this problem, a restrictive covenant would be the best way to protect the company's interests. Although the implied terms of employee confidentiality regarding company information would be valid in this case, they wouldn't stop an employee working with rivals. All doubt should be removed by the inclusion of a clause in which the employee undertakes not to carry on a particular trade or profession for a period after the termination of the contract. It would permit the company to seek a interim interdict in court against Dr MGleam and Ms Wilkes preventing them from breaching the covenant. Restrictive covenants are common in many contracts (partnership, share holders, buyer-seller) including employment contracts. Prima facie, such rules are illegal and unenforceable unless the covenantee (the side who gains from the restriction) can invoke the restraint of trade doctrine which was introduced into law as a result of the famous House of Lords case of Nordenfelt v. ...read more.

Middle

are not operated in by the company. Remembering that courts will interpret 'reasonable' more narrowly for employer-employee covenants, it would be wise not to try for a world-wide restraint. This simply means that the covenant would specify that the covenantor would not work within the districts where the company has markets when the contract ends. As courts do not alter covenants and can just enforce or strike them down, it is in the firm's interest not to tread over the fuzzy distinctions of what is 'reasonable'. It must be remembered that (in theory at least) the restriction on the covenanter's employment must be the minimum necessary to protect the employer's legitimate interest. The fact that both employees have senior positions in the company is useful for the covenantee, as it makes it more likely that the covenant will be held to be reasonable due to the confidential information that they will be privy to. The covenant must be restricted to the kind of work that is being done for the company. ...read more.

Conclusion

(General Billposting Co. Ltd. v. Atkinson) The courts tend to interpret 'reasonable' more strictly in the relationship between employer-employee than buyer and seller. It would therefore be wise not to make the covenant too wide by including a world-wide restraint. For safety's sake, the contract could be put together in a manner which would put the three parts (duration, nature, spatial area) separately. In this fashion, if a judge were to construe the covenant as being unreasonable, one term could be 'blue penciled' without canceling the whole covenant.(Mulvein v. Murray 1908) As all sources state that it is within the rights of the company to protect their trade secrets and trade connections, it is entirely reasonable for Dr McGlean and Ms Wilkes to sign a covenant restricted their right to trade with past and present clients of the company within the districts the company operates in and for a specified period of time. Dr McGlean's covenant would specifically treat the subject of electronic engineering and Ms Wilkes' would be in terms of marketing and connections. Such terms would prevent the employees getting 'poached' by rivals and would be held as reasonable and enforceable in a court of law. ...read more.

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