A settlement agreement can bring an employment relationship to a clear and agreed end, but the document may also affect what you can do after you leave. Restrictive covenants are often one of the most significant parts to check, particularly if you intend to join a competitor, contact former clients or set up on your own.
They are not automatically unfair simply because they limit your options. Equally, they are not automatically enforceable because they appear in a contract or settlement agreement. Their effect depends on the wording, your role, the business interest being protected and the circumstances in which the restriction is used. Before signing, it is worth understanding exactly what you are being asked to agree to – and whether the compensation reflects that commitment.
What are restrictive covenants?
Restrictive covenants are contractual promises that limit certain activities after employment ends. They commonly appear in a contract of employment and may be repeated, varied or reaffirmed in a settlement agreement.
Employers use them to protect legitimate business interests, such as confidential information, customer relationships, supplier connections and the stability of their workforce. They should not simply prevent someone from earning a living or remove ordinary competition from the market.
A settlement agreement may state that your existing restrictions continue unchanged. It may introduce new terms, extend the duration of earlier restrictions or clarify how they will operate after your employment ends. This is why an agreement should be read alongside your original employment contract, any later variations and, where relevant, bonus or share-plan documents.
The restrictive covenants you may see
The exact drafting varies, but most post-termination restrictions fall into a small number of categories.
Non-compete restrictions
A non-compete clause prevents you from working for, being involved with or sometimes investing in a competing business for a defined period. It may apply to a particular sector, service line, geographical area or group of clients.
This is often the most commercially significant restriction. A broad clause can make it difficult to accept a new role quickly, even where your proposed employer operates across a much wider market than your former employer. The practical question is not only whether the clause might be enforceable, but whether a new employer will be prepared to wait or take the risk.
Non-solicitation and non-dealing restrictions
A non-solicitation clause generally prevents you from approaching former clients, customers, suppliers or employees to encourage them to move. A non-dealing clause is wider: it may stop you from doing business with certain clients even if they approach you first.
The difference matters. If you work in sales, recruitment, consulting or a relationship-led role, a non-dealing restriction can affect the clients you are able to serve in your next position. The agreement should make clear which people or organisations are covered, often by reference to those you dealt with during a defined period before leaving.
Non-poaching restrictions
These clauses limit efforts to recruit former colleagues. They are commonly included for managers, senior specialists and employees with influence over teams.
A carefully drafted restriction may be reasonable where it protects a team from targeted approaches. A clause that appears to stop ordinary professional contact, or affects every employee regardless of whether you worked with them, may be harder to justify.
Confidentiality and trade secrets
Confidentiality obligations are sometimes described separately from restrictive covenants, but they often work alongside them. They may prevent the use or disclosure of confidential business information after employment ends. Protection for genuine trade secrets can potentially last longer than a typical non-compete or client restriction.
A settlement agreement will also usually contain its own confidentiality clause about the negotiations and the agreement itself. That is different from a restriction on using business information. Both should be reviewed, including any exceptions for speaking to a spouse or partner, professional advisers, HMRC, a regulator, the police or where disclosure is required by law.
Are restrictive covenants enforceable in the UK?
Post-termination restrictions are generally enforceable only if they go no further than reasonably necessary to protect a legitimate business interest. Courts look closely at the position when the covenant was agreed, rather than with the benefit of hindsight after a dispute has arisen.
There is no single acceptable time limit. A three-month restriction may be reasonable for one employee and excessive for another. Six or twelve months may be easier to justify for a senior executive with access to key client relationships, strategic plans or sensitive pricing information. It depends on the role, the industry, the information involved and how long the employer genuinely needs protection.
Scope is just as important as duration. A restriction may be vulnerable if it covers clients you never dealt with, activities outside your actual role, or a territory where the employer has no meaningful business. It may also be difficult to enforce if vague terms leave you unable to tell what work is prohibited.
However, an arguable legal challenge is not the same as a stress-free outcome. An employer may seek an urgent court injunction if it believes a former employee is about to breach a restriction. That can create expense, delay and uncertainty for you and your new employer. Clear advice before signing is therefore far more valuable than having to assess the wording under pressure later.
Why settlement agreements need particular care
Signing a settlement agreement normally involves waiving specified statutory employment claims in return for agreed compensation. The agreement must meet legal requirements, including that you receive independent legal advice for the waiver to be valid.
That legal advice should not be treated as a formality. It is an opportunity to examine the whole document, including restrictive covenants, confidentiality, agreed reference wording, payment terms, tax treatment and notice arrangements.
For some employees, the proposed settlement payment is enough to justify a period outside the market. For others, a non-compete term could interfere with a planned move, reduce future earnings or place them at a disadvantage when speaking to recruiters. If the employer is seeking a new or wider post-termination restriction, that may be a reason to negotiate both the wording and the financial package.
It also matters whether you are placed on garden leave. Garden leave can keep you employed, paid and bound by your contractual duties during your notice period. Employers sometimes combine garden leave with post-termination restrictions. The overall period during which you cannot compete may be commercially important, even where each clause looks ordinary in isolation.
Terms worth checking before you sign
Start by identifying whether the settlement agreement preserves existing covenants or creates additional obligations. A clause saying that you confirm or reaffirm restrictions can have real consequences, especially if there is doubt over whether an earlier contract was properly issued or varied.
Then look at the defined terms. Who counts as a restricted client, prospective client, supplier, employee or competitor? Is the definition tied to people you had material dealings with, responsibility for or confidential knowledge about? The more precise the wording, the easier it is to understand and the less likely it is to capture irrelevant relationships.
Check the duration and when it begins. A restriction may run from the termination date, the end of garden leave or another stated date. It should be clear whether periods overlap or run consecutively.
Consider your next step realistically. If you have already been offered a new role, compare the restriction with the duties, market and client base of that role. If you are not yet sure what comes next, think about the work you may reasonably want to pursue. You do not need to disclose more to your employer than is necessary, but you should obtain advice based on your actual plans.
Finally, check whether the agreement requires you to tell a prospective employer about the restrictions or provide a copy of them. This can be reasonable in some senior roles, but the obligation should be clear and proportionate.
What can be negotiated?
Restrictive covenants are often negotiable, particularly where they are newly introduced or substantially expanded. A practical negotiation may seek a shorter non-compete period, a narrower list of clients, removal of a non-dealing restriction or an express carve-out for a known future role.
In some cases, the sensible outcome is not removing every restriction. An employer may have a genuine interest in protecting confidential information or a small group of key clients. Narrowing the clause to those interests can give the employer reassurance while allowing you to move on with confidence.
Compensation can also be part of the discussion. If you are being asked to accept a restriction that meaningfully limits your career options, it is reasonable to consider whether the settlement payment reflects that value. The answer will depend on your seniority, notice entitlement, the strength of any potential claims and the terms already in your contract.
Get clarity before committing
A restrictive covenant may affect your next job long after the settlement payment has been spent. Do not assume the wording is standard, harmless or beyond discussion. Independent legal advice can explain what the clause means in plain English, identify where the commercial risk sits and help you decide whether to sign as drafted or seek better terms.
A fair agreement should give both sides certainty: your employer can protect what genuinely needs protection, and you can leave with a clear understanding of the opportunities still open to you.