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Restrictive Covenant Claims On The Up

'Flat' Economy Drives Aggressive Stance Towards Litigation


A leading Birmingham-based commercial litigator has reported a significant rise in the number of companies pursuing legal claims against ex-employees for breaching the restrictive covenants within their contracts.

Mark Elder, Head of Commercial Litigation at Irwin Mitchell in Birmingham, believes the latest increase has been triggered by the current economic conditions - tempting both senior executives to join competitor firms whilst also forcing companies to take a more aggressive stance in relation to litigation.

Designed to protect companies, the contracts of senior employees often incorporate post-termination obligations to ensure that they do not do certain things when they leave.  These restrictive covenants can amongst other things seek to prevent ex-employees from directly competing for work in certain areas, poaching staff, or using confidential information for commercial gain.

“We’ve seen a lot of these cases over the last few years, but over the last few months we have experienced a noticeable spike in the number of enquiries,” said Mark Elder at Irwin Mitchell.

Mr. Elder added: “The recession followed by a period of generally flat economic growth appears to be the main contributory factor. During this time, for example, there have been more senior people moving jobs - usually caused by concern about their current role, or as a result of not having received a pay rise for a number of years.

“Many of these people who move on are put on long periods of garden leave and in some situations given upfront incentives by their new employer before they join, otherwise known as ‘golden hello’ payments. The pressure to make a good impression can drive many people to start work earlier than agreed and to contact previous customers and clients ahead of time.

“Faced with an uncertain economic outlook, businesses appear intent on fighting for every penny and certainly don’t appear afraid to litigate.

“Businesses are monitoring the activity of previous employees far more closely than before and in some cases are going to great lengths to ensure their growth prospects are not compromised as a result of restrictive covenants being breached.”