Restrictive covenants and settlement agreements

Is a non-compete clause in a settlement agreement enforceable?

Only if it is reasonable: no wider than necessary in duration, geography and scope to protect a legitimate business interest, such as confidential information, trade secrets or client and staff connections. A covenant wider than needed for that purpose is void and unenforceable as an unlawful restraint of trade, and each restriction is generally assessed on its own terms, per the Acas framework on restrictive covenants.

A court can strike down one clause while leaving another in the same agreement intact. Whether a specific clause in your case is enforceable depends heavily on your seniority, your actual access to clients or confidential information, and the wording used. A restriction that might be reasonable for a senior client-facing role can be unreasonable, and therefore unenforceable, for a junior or non-client-facing one, even if both contracts use identical wording.

The reasonableness test in practice

Courts look at three main dimensions when assessing reasonableness: duration (how long the restriction lasts), geography (how wide an area it covers) and scope (what activities or clients it restricts). A six-month non-compete limited to clients you personally dealt with in the last year is far more likely to be upheld than a two-year, nationwide restriction on working for any competitor in any capacity. There is no fixed maximum duration set by statute, so what counts as reasonable is fact-specific and depends on evidence about the genuine risk to the employer, not on a rule of thumb.

Does garden leave count towards my non-compete period?

It depends on how your contract, and any settlement agreement varying it, are actually drafted. Some employment contracts contain an express set-off clause, reducing a post-termination restriction by the length of any garden leave already served, on the reasoning that you were already kept away from work, clients and colleagues during that period, so a further restriction of the same length would be unnecessary and therefore unreasonable. Other contracts keep the two periods separate, so garden leave and any post-termination restriction run consecutively rather than one reducing the other. See our garden leave guide for how garden leave itself works; whether it offsets your specific covenant is a question about your contract's wording, not a general rule, so check it rather than assume.

What can a settlement agreement do about restrictive covenants?

A settlement agreement can reaffirm covenants already in your employment contract, vary them, for example narrowing an overly broad restriction as part of the deal, or release you from them entirely in exchange for the settlement terms. It can also be used, less commonly, to introduce a new or extended restriction as a condition of an enhanced payment. Where the settlement agreement is varying or widening an existing covenant, rather than simply confirming what already exists, that generally requires its own separate consideration beyond what you were already contractually owed, because the consideration that supported the original contract does not automatically extend to support a new or broader restraint; the ex-gratia settlement sum can sometimes serve this purpose, but only if the agreement is drafted to make that clear. This is known as a post-termination restraint agreement point (PTRA), and it is one of the more technical areas of a settlement agreement to get right, so have it checked specifically rather than treated as a standard clause.

The 2023 non-compete cap proposal: where it stands

In May 2023 the UK government announced an intention to legislate for a statutory limit of three months on the length of non-compete clauses in employment contracts, alongside other measures. As at the date this guide was last checked, that proposal has not been brought into force as law, so the ordinary common-law reasonableness test described above remains the governing standard for non-compete clauses. Because a legislative change of this kind would directly affect how long a non-compete in your settlement agreement can run, check the current position with your solicitor rather than relying on a headline about the 2023 announcement, which may be out of date by the time you read this.

Covenant clauses: what to ask for

Work through each covenant-related point in turn: some are already fixed by your existing contract, others are genuinely open for negotiation as part of the settlement.

Worked example: structure, not figures

A typical covenant review on a settlement agreement follows this order: (1) obtain the exact covenant wording from the employment contract, since the settlement agreement often just says the covenants "continue to apply" without restating them; (2) check whether any garden leave already served offsets the restriction period under the contract's own wording; (3) assess whether the duration, geography and scope look reasonable for the role, or arguably wider than necessary; (4) if the settlement agreement introduces a new or wider restriction, check that separate consideration genuinely supports it; (5) agree explicit wording on any negotiated narrowing or release, rather than relying on an informal assurance that the restriction "won't really be enforced". We do not give a specific view on enforceability here because it turns entirely on the facts of your role and the exact wording, which a solicitor reviewing your agreement will assess against the points above.

Restrictive covenants: frequently asked questions