Restrictive Covenant

Posted in Human Resource Terms, Total Reads: 843

Definition: Restrictive Covenant

A restrictive covenant is a clause in the legal employment contract of an employee, included therein by the employer, restricting the employee from engaging in certain activities either after or during his employment. Such a clause usually pertains to an employee not joining the competitors business for a certain period of time after leaving his present employer and not starting a similar business for a certain period of time and within a certain geographical territory.

Employees, during their employment may have access to important and confidential business information. The purpose of a restrictive covenant is to prevent employees from exploiting such information for their personal gain either during or after their employment.

Depending upon the type of restriction imposed restrictive covenants may be of four types:-

  • On-competition covenants - restrictions on the former employee working in similar employment for a competitor
  • Non-solicitation covenants – which prevent poaching of clients/customers/suppliers of the former employer
  • Non-dealing covenants – which prevent a former employee from dealing with former clients/customers/suppliers, regardless of which party approached the other
  • Non-poaching covenants – which prevent an employee poaching former colleagues

Such a clause may also be a part of a partnership agreement.


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