In Short
- Restrictive covenants limit what a party can do, commonly through non-compete, non-solicitation, non-dealing, or non-disclosure clauses.
- They are enforceable only if they protect a legitimate business interest and are reasonable in scope and duration.
- Government consultations may restrict or ban non-compete clauses, shifting reliance towards other covenants like non-solicitation and non-dealing.
Tips for Businesses
Use restrictive covenants only where necessary to protect business interests like customer relationships and confidential information. Keep clauses narrow in scope, duration, and geography to improve enforceability. Monitor developments around non-compete clauses, and consult legal advice to draft balanced, enforceable contracts that protect your interests without overstepping.
Summary
This article explains restrictive covenants in commercial and employment contracts, particularly in the UK, and outlines key types such as non-compete, non-solicitation, and non-dealing clauses. Prepared by LegalVision, a commercial law firm specialising in advising clients on employment law and commercial contracts, it offers guidance on drafting enforceable covenants and understanding the potential impacts of proposed legislative changes.
If you run a business or work with contracts, you will likely encounter restrictive covenants. These clauses carry different meanings depending on the context, and understanding them helps you use them effectively. You may also find yourself bound by a restrictive covenant, so knowing your legal obligations is equally important.
This article explains key points about restrictive covenants and provides guidance on the most common types.
What is a Restrictive Covenant?
Put simply, a restrictive covenant is an agreement not to do something you would otherwise be able to do. In this way, it is ‘restrictive’ of your actions, and it limits what you can do. In a commercial setting, you can use several types of covenants.
The rest of this article will explain some key points around those types of restrictive covenants.
A Non-Compete Restrictive Covenant
Non-compete clauses protect a business’ interest by ensuring information stays private instead of entering the public domain. For example, you may have:
- valuable information;
- trade secrets; or
- intellectual property not protected by copyright or trade mark.
A non-compete clause restricts an employee from competing with your business, either directly or indirectly. This type of clause usually includes a geographic area in which the non-compete clause applies. Generally, parties limit it to similar businesses for a specified time period. The clause can apply to a competing business or a business that the employee may set up which would compete with your business. The enforceability and scope of non-compete clauses may change significantly in 2026-2027. The government is currently consulting on proposals that could restrict or ban these clauses entirely. Businesses should monitor these developments closely when drafting new employment contracts
also compensate the employee.
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Non-Solicitation Clause
A non-solicitation clause means that the other party cannot solicit your employees or customers from your business. This is also usually confined to an area, time period and similar businesses.
Non-Dealing Restrictive Covenant
Non-dealing covenants are similar to non-solicitation clauses. They refer to where a party is prevented from dealing with the suppliers or customers of your business. Dealing usually refers to engaging in transactions. This means that if you agree to a non-dealing clause but not a non-solicitation clause, the other party can approach your customers or employees, but they cannot enter into a transaction with them.
Non-Disclosure Restrictive Covenant
A non-disclosure clause prevents the other party from taking:
- information;
- trade secrets;
- ideas; or
- data of your business.
It is a good way of protecting confidential information as part of your business.
Protecting a Restrictive Covenant
The key point to remember is that restrictive covenants can be difficult to enforce in court. A restrictive covenant will usually be enforceable if it is to protect the legitimate interests of your business. If there is no legitimate business interest as part of the rationale behind the restrictive covenant, then a court is unlikely to enforce the restrictive covenant.
Additionally, a restrictive covenant must be reasonably restrictive on the other party. To satisfy this, the restriction must be no more than necessary to adequately protect the business interest. As such, it is important to seek professional legal advice if you are thinking about getting a party to agree to a restrictive covenant.
If you successfully have your restrictions upheld in court, you may be entitled to compensation. Sometimes, a court will be willing to consider an injunction to protect your interest. An injunction is where a court requires a party to do or not to do something. Injunctions are discretionary, so it is up to the court whether it is an appropriate remedy in your situation or not.
Proposed Changes to Non-Compete Clauses
The government has consulted on significant restrictions to non-compete clauses in employment contracts. Proposals have included:
- Limiting the duration of non-compete clauses to between three and six months maximum;
- Restricting their use to senior or higher-paid employees only;
- Limiting their application to smaller companies;
- A potential complete ban on non-compete clauses.
These changes could fundamentally alter how businesses protect their interests when employees leave. If implemented, employers may need to rely more heavily on other types of restrictive covenants, such as:
- non-solicitation;
- non-dealing; and
- non-disclosure clauses, to protect their legitimate business interests.
Key Takeaways
A restrictive covenant is an important tool in commercial and employment contracts. The result of a restrictive covenant is that the party who has agreed to the contract cannot do a specific action. Importantly, a restrictive covenant must be a reasonable restriction that is no more than necessary to achieve a legitimate business interest. If it is not, a court will be unwilling to enforce it. If a court is not willing to enforce the restrictive covenant, then it has very little value for you. Some common types of restrictive covenants include non-compete, non-soliciting, non-dealing, and non-disclosure clauses.
Please note that, as of February 2026, significant changes to non-compete clauses are currently under consultation and may be implemented in the near future.
If you need help in drafting your commercial contracts, LegalVision provides ongoing legal support for all businesses through our fixed-fee legal membership. Our experienced employment lawyers help businesses across industries manage contracts, employment law, disputes, intellectual property, and more, with unlimited access to specialist lawyers for a fixed monthly fee. To learn more about LegalVision’s legal membership, call 0808 196 8584 or visit our membership page.
Frequently Asked Questions
A restrictive covenant is a clause where the party to the clause agrees not to do something they would otherwise be able to do.
Yes. A non-disclosure clause is a good way of protecting confidential information which you do not have an existing legal right over.
Yes, the government is consulting on significant restrictions to non-compete clauses. Proposals include limiting their duration to 3-6 months, restricting them to senior employees only, or potentially banning them entirely. These changes could take effect during 2026-2027.
Yes. Some key changes include extended tribunal time limits (effective October 2026 and fire and rehire restrictions (effective October 2026). These changes increase employee protections and potential employer costs, so legal advice is essential when introducing or enforcing restrictive covenants.
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