ICAEW.com works better with JavaScript enabled.

Restrictive Covenants in partnership agreements or contracts of employment

Generally the most effective way of protecting trade secrets, connections and confidential information is by requiring both partners and employees to enter into non-competition undertakings.

The advantage of having express restrictions applying either during or after active service is that they can be specifically drafted to reflect the individual circumstances and should be more likely to be enforced by a court. There may also deter employees or partners from joining competitors and may warn off potential new employers who face the risk that those restraints will be enforced.

However, the attitude of the courts to enforcing these provisions means that careful drafting is not just advantageous, but a necessity.

Where are they found?

Restrictive covenants are typically found in partnership agreements as well as contracts of employment


An employer cannot impose a covenant merely to stop someone competing, but it can seek to stop that person using or damaging something which legitimately belongs to it. There can be no guarantee that any restrictive covenant will be enforceable and there are no general guidelines which can be specified as to what would be considered reasonable, for example in terms of time or geography. Each clause must be considered in each case by reference to the business needs of the partnership or company imposing the restriction.

To determine what rights may require protection; one must look at the nature of the partnership’s as well as the individual’s position in that business:

In broad terms courts will allow the following to be protected:-

  • Trade connections (with suppliers or customers) and, more generally, goodwill
  • Trade secrets and other confidential information.

If there is a legitimate interest to protect, the restriction should be no wider than reasonably necessary to protect that interest. This will involve limiting the covenant not only by reference to the restricted activities themselves but also by reference to the period and (if appropriate) the geographical extent of its application. Failure to do so may result in the covenant being treated as having too wide a scope and being, therefore, potentially void.

The firm must therefore consider what aspects of its business legitimately require protection by way of restrictive covenants. It must then look separately at each employee or partner and determine what level of protection is reasonably necessary in each case. What is appropriate for one individual may not be appropriate for another.

For example, a high ranking employee or partner may have more involvement in, and knowledge of, the employer's affairs than a low ranking employee; alternatively two individuals on the same level may actually have differing influences over the customers and have varying knowledge of confidential information. The fact that the firm distinguishes between two employees or partners on the same level may help to persuade the court that it has genuinely and reasonably sought to protect its interests.

Distinction between restrictions on employees and partners

Restrictive covenants in employment contracts are often open to challenge because of the inherent inequality between the bargaining position of the employee and employer. The position of salaried partners is analogous to that of employees who hold no stake in the goodwill of the firm (Briggs v Oates [1990] IRLR 472). Restrictive covenants imposed upon such employees and/or fixed share profit share partners will be open to far greater scrutiny and the reasonableness of the covenants may be easier to challenge.

Restrictions against full or part equity partners are treated differently from restrictions against employees. In this context partners can be validly bound by covenants which are much more onerous than covenants which may be validly imposed upon employees/salaried partners. This is essentially because the courts consider that there is a greater equality of bargaining power between equity partners who are all subject to the same restrictions in a partnership agreement than as between an employer and employee.

The decision in Bridge v Deacons [1984] 2 All ER 19 is the leading authority on the enforceability of restrictive covenants against partners. In this case the partnership agreement included a non-dealing restrictive covenant preventing Bridge from acting as a solicitor in Hong Kong for five years for any client of the firm or any person who had been a client within the three years prior to his departure. In the context of a partnership agreement this restriction was held not to be unreasonable.

Although some commentators suggest that if a case similar to Bridge v Deacons were decided today, the court would find that the restriction was unreasonable. The case serves as a useful marker to professional partnerships seeking to impose restrictions on full equity partners.

Enforcing Restrictive Covenants

A firm seeking to enforce restrictive covenants may as a matter of urgency take steps to obtain an interim injunction following which, an application for a full injunction may be brought. Alternatively, if unsuccessful in obtaining an injunction, damages and/or account of profits may be sought from the individual for breach of the covenants.

In deciding whether to award damages the court will consider the following questions:

  • Was the covenant going no further than protecting a legitimate business interest?
  • If so, was the individual in breach?
  • Did that breach cause the employer loss?
  • How should loss be assessed?

Darbys’ specialist employment team frequently advise on this area and will be able to provide guidance on the construction, and if necessary, the successful enforcement of restrictive covenants.

Author: Rebecca Kashti, Partner, Darbys Solicitors LLP