Employers should review Employee Contracts Regularly

 AN AUTOMATIC review of restrictive covenants in employee contracts should be triggered with any employee promotion or alteration of job duties, following a High Court ruling.

A recent decision in the case of PAT Systems v Neilly highlighted the need for employers to undertake regular reviews of restrictive covenants in the contracts of employment of employees as they progress through the company. Tips would be to seek fresh agreement with the worker on existing covenants or create new covenants based on altered duties and responsibilities.

In PAT Systems v Neilly, the High Court confirmed that the enforceability of a restrictive covenant must be judged by reference to the time it is entered into, rather than at the end of the employment relationship. In this case, the very rigid restrictive covenant imposed on the then junior worker was not enforceable, even though at the time the employee left the company, he was senior enough to merit such a covenant in his contract and could legitimately have been restrained from joining a competitor.

The High Court refused the Company's application stating that Mr Neilly's role and responsibilities at the time the contract was entered into did not warrant such a lengthy restriction on his activities. His subsequent promotion alone was not sufficient to render the previously unenforceable restriction enforceable.

Christina Reed, employment solicitor for Vincents Solicitors, stated: “Employers shouldn’t wait for key employees to depart from the company before reviewing their restrictive covenants, as they may find that they are no longer fit for purpose, especially if they haven’t been reviewed in years.”

She added: “Restrictive covenants should be tailored to the seniority of the employee and should not go beyond what is necessary to protect the employer’s legitimate business interests. Further, they should be reviewed on a regular basis – the trigger for review being promotion or alteration of contracts – in order to ascertain whether they are still appropriate and reasonable given the employee’s current status.”

For more advice or information please contact Christina Reed on 0800 310 2000 or email christinareed@vslaw.co.uk