Restrictive Covenants in Employment Contracts

Restrictive clauses in employment agreements may bind employees with their employer even after their employment has been terminated. Normally agreed upon commencement of the employment, such clauses may restrict the employee to exercise trade or profession competing with the employer (non-compete clause), from disclosing any confidential information or trade secrets relating to the employer’s business to third parties (non-disclosure clause) or from soliciting clients or staff of the former employer (non-solicitation clause).

The application of these restriction by the employer are limited to where reasonably necessary for the protection of the employer’s business. Legitimate interests in respect of which an employer is entitled to exercise such protection against the employees include (i) trade secrets and confidential information; (ii) existing customer and connections; (iii) working for competitors and (iv) enticing existing employees.

The law in Malta does not regulate restrictive covenants in employment contracts. Maltese courts have however set several limitations on the validity and enforceability of restrictive covenants in employment contracts.

According to Maltese case law, clauses in restraint of trade must be interpreted as restrictively as possible. The Maltese Courts follow that such restrictive clauses are valid and enforceable when the employer can prove that legitimate interest in imposing such clause and the clause is reasonable within the relevant context. In contrast, the Courts have held that, generic and ambiguous restrictive clauses being all-encompassing and preventing the employee’s exercise of his trade or profession in any manner following termination of employment, albeit for a limited period, to be void and not enforceable since they may be tantamount to stifling the employee’s right to work.

A non-solicitation covenant can restrict the right to solicit or attempt to entice away former customers, or to have post-employment dealing with such customers, but such clauses should be limited to those customers with whom the ex-employee had some dealings for otherwise the restrain is likely to be viewed as one designed to prevent competition. In such cases the position of the employee, the effective period of services and the employer’s nature of business may be relevant.

Restrictive clauses can be enforced only if they are in writing. Restrictive covenants are to be reasonable, without exceeding what is genuinely necessary in order to protect an employer’s interest. These clauses are to be reasonable in relation to the subject-matter, time and place in which it operates.