31/07/2015

By Jonathan Whittaker, senior partner at SAS Daniels


Another month, another Jeremy Clarkson headline. This time Clarkson is back in the newspapers after the former Top Gear presenters agreed a deal to produce a new motoring show on Amazon Prime. In a blog here last month we looked at what happens when faced with employee disputes and how to ensure that you’re protected. This time, as the Clarkson scenario so eloquently demonstrates, we’ll look at employee contracts: specifically restrictive covenants and the job that they do in protecting your business.

The Clarkson trio were reported to have been in talks with ITV and Netflix about creating a rival car show. According to the media, as the talks progressed the trio hit a small glitch in negotiations as it was revealed that their old employment contract with the BBC contained restrictive covenants.

The purpose of a restrictive covenant in an employment contract is to protect a business from unfair competition after one of its employees leaves. It enables the employer to set out restrictions that can prevent an ex-employee working for a competitor, poaching clients or even setting up on their own within certain time frames or even geographies if appropriate. These restrictions prevent the employee taking intellectual property, business plans or even knowledge to another company where they could be of commercial advantage.

The BBC sensibly included a restrictive covenant in Clarkson’s, Hammond’s and May’s contracts to prevent them from making a rival car show with any other British terrestrial broadcaster until 2017. Given the BBC’s investment in all three presenters, from their salaries and personal profiles to the Top Gear brand, it’s understandable that the organisation wants to protect themselves against the competition.

The clause is in place to give the BBC the chance to create a new version of the show with new presenters (Chris Evans as it turns out) and prove to the audience that it is just as good, if not better.

So are restrictive covenants bulletproof? Not quite. In this case, the covenant states that the restriction applies only to UK terrestrial broadcasters so while ITV is out, there’s nothing to stop the US based on-demand Internet streaming service Netflix coming in and offering a deal. Netflix clearly falls outside the restrictive covenant and all indications (and gossip) currently point to the trio signing up with the US streaming service.

With a possible job opportunity for the infamous Clarkson and his team, and Netflix having the opportunity to crack the UK market properly, has the BBC missed a vital link in their clause? Possibly. What this highlights is the importance of keeping restrictions up-to-date and as relevant as possible. At the time Clarkson’s contract was drawn up it’s likely that Netflix didn’t occupy its current market position, so the extent of the competition between the two broadcasters would have been less. If you operate in a fast moving industry, ensure that you re-negotiate contracts to reflect competition and market changes.

The key for businesses looking to use restrictive covenants in employee contracts is to be clear on what is and isn’t ok post employment, and ensure that this is detailed. Just as importantly go through the contract with your employee at the beginning of their employment. Give them time to review the contract and be specific during your discussions so that it’s clear. That way there is little opportunity for confusion at the end of their employment.