Can restrictive covenants extend further in shareholder agreements than they would in an employment contract?
Resource type: Ask PLC Legal query
Status:
Published on 03-Feb-2012
Jurisdictions:
England, Scotland, Wales
Can I please ask you for your thoughts on the relationship between covenants in shareholders agreements and those in corresponding employment or consultancy agreements?
This is an issue that often crops up for me; where you have concurrent shareholders covenants (which are often more bullish and simple in drafting) and an other set which are work related.
Obviously both need to be in place in case the shareholding goes but the work continues or vice-versa.
Is it the case that you need to make sure both sets are the same for fear of having one set held against the other (for instance there may be an argument that the employer saw 6 months as adequate protection so the 1 year in the shareholders agreement cannot stand)? Or can you legitimately argue that the commercial arrangements in the shareholder's agreement can be tougher because they are arm's length? I've even heard it argued that the employment contract covenants can be tougher because there are corresponding covenants in a shareholder's agreement.
Your thoughts would be greatly appreciated.
Anonymous (Private practice)