Key Takeaways
- Restrictive covenants after resignation or redundancy in settlement agreements often go further than necessary and may not always be enforceable.
- Employers frequently overuse non-compete clauses in settlement agreements, even following redundancy, so you should always assess if the restrictions are genuinely needed for your specific role.
- Enforceability of restrictive covenants depends on whether they protect a legitimate business interest and are reasonable in terms of length, location, and scope.
- If your redundancy settlement agreement includes broad or unclear post-termination restrictions, our solicitors can negotiate for waivers, carve-outs, or improved compensation.
- Signing a settlement agreement with tough restrictive covenants can affect your future job prospects, so you should seek expert employment law advice before agreeing to any terms.
- Our solicitors provide same-day remote consultations across the UK, and legal fees are paid by your employer, meaning our expert guidance is free for employees.
- You can ask to have non-compete clauses limited or removed, particularly if their duration exceeds the new three-month cap or they go beyond what is reasonable for your industry.
- Settlement Agreement Lawyers are SRA regulated and rated Excellent with over 1,400 five-star reviews of our lawyers on Trustpilot and Google, so you can trust us to protect your career.
Restrictive covenants after resignation or redundancy: are non-compete clauses still being overused in settlement agreements?
If your settlement agreement includes restrictive covenants after resignation or redundancy, you are not alone in wondering whether non-compete clauses are still being overused in these deals. The law requires you to get independent legal advice before signing any settlement agreement, and your employer almost always pays for it, so there is no cost to you for our solicitors’ expert support.
These post-termination restrictions—especially non-compete clauses—can severely limit your ability to take up new work after leaving, even if your role is made redundant. Agreeing to overly broad or unfair restrictions may affect your career and livelihood for months or even years. That’s why our solicitors check both the fairness of the covenants and the overall settlement terms, and will negotiate on your behalf where needed.
This guide will explain when restrictive covenants are enforceable after redundancy or resignation, how to challenge or narrow unreasonable non-compete clauses, and strategies to protect your future job prospects before you sign. For urgent advice, call our solicitors on 0800 054 1144 or book your settlement agreement advice online.
What are restrictive covenants and non-compete clauses after resignation or redundancy?
Restrictive covenants are contract clauses that attempt to limit an employee’s activities after their employment ends. The most common types in settlement agreements include non-compete clauses (barring the employee from working for competitors), non-solicitation clauses (preventing you from poaching former clients or colleagues), non-dealing clauses (prohibiting you from handling business with certain customers), and confidentiality restrictions (requiring you not to disclose sensitive information). After resignation or redundancy, restrictive covenants are often written into settlement agreements to safeguard the employer’s business interests.
Employers may seek to include or re-state these restrictions at the end of employment, especially if your original contract was silent or you’re being paid an enhanced package. Increasingly, we see non-compete clauses being applied broadly across different types of exit, including redundancy, where their business rationale is weaker. The question “restrictive covenants after resignation or redundancy: are non-compete clauses still being overused in settlement agreements?” is now common as employees worry about unfair limits on finding new work.
The legal view is that these post-termination restrictions should go no further than necessary to protect a legitimate business interest—such as trade secrets, customer relationships, or confidential information. Overly broad or long-lasting restrictions are less likely to be enforced by the courts, but they can still make new job searches difficult and may be used as a threat by a former employer.
Ask our solicitors to compare the restrictions in your draft settlement agreement with those in your original contract. Often, settlement agreements introduce stricter or entirely new restrictive covenants, which can make them harder to challenge. Never assume the wording is standard or fair—always have it reviewed before signing.
For more detail on these types of clauses, see our settlement agreement advice and redundancy pages, or visit the ACAS settlement agreements guidance page.
Why do I need independent legal advice (ILA) before signing a settlement agreement with restrictive covenants?
You are legally required to obtain independent legal advice before a settlement agreement is valid and binding. This requirement comes from section 203 of the Employment Rights Act 1996, which protects employees from waiving their rights—including rights to challenge unfair or excessive restrictive covenants—without understanding the consequences. The employer is almost always responsible for your legal costs, and our fee is capped at the employer’s contribution. Our solicitors’ advice is genuinely free to you.
When your settlement agreement contains restrictive covenants, independent legal advice becomes even more important. Our solicitors will review whether the non-compete and other post-termination restrictions are reasonable, necessary, and enforceable. We can explain the impact of each clause, whether it goes further than your original contract, and how it could affect your future employment prospects. If a clause would unreasonably restrict your job search, we will advise you on negotiating changes or seek clarification from your employer.
An employee made redundant from a national retailer was offered a standard settlement agreement, which included a 12-month non-compete applicable anywhere in the UK. The original contract had only a 3-month local restriction. Our solicitors advised that the new clause was likely unenforceable and overreaching, successfully negotiating a significant reduction in the scope and duration, enabling the client to find new work more easily.
For more details on why legal advice is mandatory and how the process works, see our section on settlement agreement advice and book ILA online.
Are restrictive covenants after redundancy or resignation enforceable in settlement agreements?
The enforceability of restrictive covenants after resignation or redundancy depends entirely on their necessity, scope, and the specific context. In English law, post-termination restrictions included in a settlement agreement are assessed under the same principles as those in a contract of employment. The key principle is that such clauses must protect a legitimate business interest (e.g., client relationships, trade secrets) and go no further than necessary to do so.
Non-compete clauses are especially susceptible to being overused in settlement agreements, often extending far longer and wider than is justifiable. For example, a six-month non-compete for a junior employee with no access to confidential information is unlikely to be enforceable. Settlement agreements do, however, make these restrictions contractually binding and may provide a more secure footing for an employer to seek an injunction if you breach them.
It is worth noting that redundancy, by its very nature, weakens the argument for enforcing non-competes and other restrictions, as redundancy signals the job is no longer needed. Recent legal developments and planned reforms, including the proposed three-month cap on non-compete clauses, reflect growing concern about overuse. Until new laws come into force, existing agreements remain governed by current legal principles.
Always challenge the relevance of any non-compete or other restrictive covenant in your settlement agreement if you are leaving by reason of redundancy. Request your employer set out specifically what legitimate business interests they are seeking to protect, especially if you worked in a non-confidential or non-managerial role.
For deep legal background, consult s.203 Employment Rights Act 1996 and ACAS guidance on restrictive covenants.
Can I negotiate or remove restrictive covenants and non-compete clauses from my settlement agreement?
Yes, employees can and frequently do negotiate or even remove restrictive covenants and non-compete clauses from settlement agreements. These clauses are not fixed in stone. Especially in redundancy or mutual exit cases, employers may be open to reducing their scope—or waiving them entirely—as a condition of settlement. Our solicitors regularly negotiate on clients’ behalf, arguing that restrictions should be proportionate to your specific role and situation.
Key negotiation strategies include:
- Challenging the necessity of the restriction for your particular job and sector.
- Requesting a reduction in length (e.g., from 12 to three months).
- Reducing or removing geographic scope, so it covers only direct competitors or your previous customer base.
- Limiting the types of roles or businesses captured by non-compete wording.
- Asking for an explicit waiver of enforcement in redundancy situations.
Employers may agree to dilute or strike out clauses to reach settlement, especially if the business rationale is weak or if you are prepared to negotiate on other terms (like compensation or references). It is vital that negotiations happen before you sign, as post-signing variation is rarely possible.
A marketing manager facing redundancy was handed a draft settlement agreement that introduced a far stricter non-compete clause than her original contract. Our solicitor explained she could challenge it, and after negotiations, her employer agreed to a significant reduction in both the length and scope of the covenant, as well as a written agreement not to enforce the restriction if the business changed hands.
To learn more about negotiating your settlement, visit our settlement agreement advice and see anonymised examples on our client success stories page.
If you are concerned about the impact of restrictive covenants or non-compete clauses in your agreement, our solicitors can review your draft, advise you on what is fair, and negotiate changes or removals—always at no personal cost, as your employer pays the fees. To book same-day remote advice or discuss your case, call our settlement agreement solicitors now on 0800 054 1144 or book your settlement agreement advice online.
Is my settlement agreement financial package fair if restrictive covenants are included?
A “fair” financial package in a settlement agreement must take into account both the normal contractual entitlements (notice pay, accrued holiday) and any enhanced sum for waiving your statutory rights—and, crucially, for agreeing to new or extended restrictive covenants. It is common for employers to ask for additional covenants in exchange for a higher payment. If you agree to tougher post-employment restrictions than were in your original contract, this should be reflected in the compensation.
Our solicitors use a combination of benchmarking, statutory minimums, and commercial sense to advise you on the fairness of your package. For redundancy cases, the employer must pay at least statutory redundancy and notice pay. If restrictive covenants are unusually onerous or broad, you may be entitled to negotiate for a significantly higher sum or for the removal of those clauses. Do not overlook the practical impact—long non-compete periods can cost far more than an initial ‘ex gratia’ payment.
| Element | Taxable? | Renegotiable? | Standard Benchmark |
|---|---|---|---|
| Statutory Redundancy Pay | Up to £30,000 tax-free | No | Statutory minimums |
| Contractual Notice (PENP) | Usually taxable | Sometimes | As per contract |
| Accrued Holiday Pay | Taxable | Sometimes | Pro-rata |
| Ex Gratia / Enhanced Payment | Up to £30,000 tax-free | Yes | If restrictions included |
| Non-Compete Compensation | Tax advice needed | Yes | Higher sum usually justified |
If your employer insists on longer or more restrictive covenants in your settlement agreement, push for explicit compensation for this. Use our settlement agreement calculator or employment tribunal compensation estimator to benchmark your offer. If the financial package doesn’t match the new constraints, don’t sign.
For more on redundancy rights and minimum payments, see gov.uk redundancy pay guidance.
What are the tax implications of a redundancy settlement agreement with restrictive covenants?
Tax treatment for settlement agreements is governed by both the form and substance of each payment. The most important tax rules include the £30,000 exemption for genuine ex gratia (compensatory) payments and the separate tax rules for earnings, notice pay (PENP), and payment for restrictive covenants.
If you are paid for agreeing to restrictive covenants that go beyond your original contractual obligations, HMRC may regard this as taxable income rather than as a tax-free termination payment. This is because payment in return for future restrictions is deemed a “restrictive undertaking” under tax law and is usually subject to income tax and National Insurance. By contrast, payment solely for loss of employment (and not tied to new restrictions) can qualify for the £30,000 tax exemption. If your settlement agreement splits out a payment specifically as consideration for a non-compete clause, this will almost always be taxed fully.
PENP (Post-Employment Notice Pay), covering pay in lieu of notice, is always taxed. The same applies to accrued but untaken holiday.
A client negotiated a higher settlement in return for accepting a new 6-month non-compete. The payment attributed to the restriction was separately identified as taxable income. We advised that this should be taxed through payroll, not as part of the tax-free £30,000, and ensured the employer made clear how each element would be taxed in the agreement.
Always ask our solicitors to review your settlement agreement for tax risks—tax errors can be costly. More guidance is available from gov.uk on the tax treatment of termination payments.
Key clauses and risks: what should I check before signing a settlement agreement?
Every settlement agreement contains key clauses worth double-checking, especially when restrictive covenants after resignation or redundancy: are non-compete clauses still being overused in settlement agreements cases are increasing. You should not assume any term is boilerplate; the language of each can seriously affect your rights and future options.
Restrictive covenants (non-compete, non-solicitation, confidentiality)
These limit your ability to work for certain competitors, approach your old clients, or use confidential information. Review:
- The duration: longer than 6 months is rarely reasonable except in very senior roles.
- The geographical scope: should not extend nationwide unless truly justified.
- The activities restricted: should be limited to what you actually did for your employer.
- Any new restrictions that go further than your original contract.
Never accept new or bolstered restrictive covenants without additional compensation. Ask our solicitors to check the exact language—many employer templates overreach, but the law only enforces what is reasonable.
References, confidentiality, and NDA terms
Settlement agreements nearly always contain clauses about the wording of references, confidentiality about the deal itself, and non-disclosure of sensitive information (NDA). A fair reference clause is important, especially if you’re subject to non-compete or non-solicitation clauses that make finding new work harder.
Check for restrictions on discussing the circumstances that led to redundancy or resignation. Overly broad NDA clauses can unfairly limit your ability to discuss your experiences or seek support.
We once renegotiated a reference clause that was so ambiguous it could have prevented the employee from explaining their departure to recruiters. The improved clause secured the client a mutually agreed factual reference—vital for future job searches.
Tax indemnities and other liabilities
Tax indemnity clauses are common in settlement agreements. These generally require you to repay the employer any extra tax HMRC demands if the payments are later reclassified (for example, if a non-compete payment is taxed as “earnings”).
Before signing, ensure that any tax indemnity is fair—ideally, it should exclude tax that ought to have been withheld by the employer, and only apply to sums above the legal exemption. Other liability clauses (such as those relating to company property) must be clearly defined and not overly punitive.
Ensure your agreement clearly spells out the breakdown of all payments and what each is for. If there is any ambiguity, get our solicitors to request clarification—it can save you from unexpected tax bills later. More guidance is available on our settlement agreement advice page.
Step-by-step: How does the settlement agreement signing and ILA process work?
The process for getting a settlement agreement signed and supported by independent legal advice (ILA) is structured but can be completed quickly—especially if you work with remote, same-day services like ours. Here’s how it works:
- Receive the Draft Agreement: Your employer sends you their draft document, which includes any restrictive covenants, compensation, and other terms.
- Contact Our Solicitors: Reach out to book a free legal advice appointment. Your employer covers the cost—no fee to you.
- Document Review: Our solicitors read your draft, flag any excessive or unusual restrictive covenants and advise on risks, fairness, and enforceability.
- Advice Session: We hold a remote (telephone or video) meeting where our solicitor explains every clause—especially non-competes and tax points—in plain English.
- Negotiation (if needed): If you wish to challenge or negotiate restrictive covenants or any other terms, our solicitors contact your employer or HR, putting your counter-proposals forward.
- Finalise and Sign: Once all issues are resolved, you sign the agreement. Our solicitor signs the ILA certificate and provides it to your employer, making the deal binding.
- Receive Payment: The employer pays you the sums agreed, typically within 7–14 days.
Never resign before your settlement agreement is signed and the ILA process is complete. If you resign early, you could strengthen your employer’s position or lose leverage for negotiation—always seek our advice first.
Our service is fast, flexible, and remote. For more details, see our dedicated guides on settlement agreement advice and book ILA online.
If you have received a settlement agreement and are worried about restrictive covenants after resignation or redundancy: are non-compete clauses still being overused in settlement agreements, talk to our solicitors today. The process is straightforward, our advice is SRA regulated, and we handle all negotiations for you. Call 0800 054 1144 to speak to us direct, or book your remote settlement agreement appointment online. Remember, our service is completely free to you as the employer covers all fees.
Why Choose Settlement Agreement Lawyers?
Our solicitors are specialists in settlement agreements and employment law, regulated by the Solicitors Regulation Authority (SRA). We have successfully advised thousands of employees on restrictive covenants after resignation or redundancy—negotiating fair exits, striking out overbroad non-competes, and securing higher compensation packages where restrictions are demanded.
- Expertise: Settlement agreements are our core business. We understand every nuance and have deep insight into how often non-compete clauses are used beyond what is reasonable, especially in redundancy cases.
- Negotiation Skill: We are proactive in challenging inappropriate restrictive covenants and securing better outcomes for employees—see our client success stories for real examples.
- Remote, Same-Day Service: You can book and complete your ILA online—no need to attend an office, no waiting for weeks.
- Employer Pays the Fee: Our cost is capped, paid by your employer, and we guarantee you will not be out of pocket.
An employee receiving an unexpected settlement agreement following whistleblowing was faced with a blanket non-compete, despite having no access to confidential data. Our solicitors swiftly achieved removal of the clause entirely, plus an improved reference and ex-gratia payment—showing how professional support makes all the difference.
For confidential advice with no risk and no cost, reach out via our settlement agreement advice or book your ILA online.
Frequently Asked Questions About Restrictive Covenants After Resignation or Redundancy
Can my employer enforce a non-compete clause after I’m made redundant?
A non-compete clause in your settlement agreement can be enforced if it is reasonable and protects a genuine business interest. However, courts are less likely to uphold overly broad restrictions following redundancy, so you may be able to negotiate or challenge the terms.
Does redundancy automatically cancel restrictive covenants in my contract?
No, redundancy does not automatically cancel existing contractual restrictive covenants. Unless explicitly released or limited in your settlement agreement, original restrictions usually remain in force. Always negotiate or confirm any waivers you require before signing.
How do I know if a non-compete in my settlement agreement is fair or legal?
A fair non-compete is limited in duration, scope, and geography, and is based on real business needs. Our solicitors review these restrictions at your ILA appointment and explain whether the clause is enforceable or can be negotiated.
What can I do if my employer overuses restrictive covenants in my settlement agreement?
You can request reductions or removal of restrictive covenants before signing. Our solicitors frequently negotiate these changes, especially in redundancy cases, to ensure the terms are proportionate for your situation or matched by additional compensation.
Are new laws or the three-month cap on non-competes relevant to my agreement?
Proposed new limits, such as the three-month cap on non-compete clauses, will only apply once they become law. Current agreements are governed by existing rules on reasonableness. Our solicitors can still help you challenge excessive terms in today’s agreements.
Will restrictive covenants stop me from getting another job after redundancy?
Restrictive covenants—especially strong non-compete clauses—can limit your future employment options, particularly in your sector. Our solicitors help you assess and, where needed, negotiate narrower restrictions so you can move forward in your career.
Can settlement agreement restrictive covenants be negotiated or limited?
Yes, restrictive covenants in settlement agreements can often be scaled back or removed entirely before signing. Employers are frequently willing to consider changes, particularly when the original scope is not justified by your specific role.
What happens if I breach a settlement agreement non-compete clause?
If you breach a non-compete clause, your former employer could seek an injunction or damages. Only reasonable, enforceable covenants will be upheld by courts, so if a clause is overbroad, it may not be enforceable even if included in your settlement.
Get Expert Advice on Restrictive Covenants and Non-Compete Clauses in Your Settlement Agreement
Understanding your rights around restrictive covenants after resignation or redundancy—especially when non-compete clauses are still being overused in settlement agreements—can make all the difference to your future career and finances. Our solicitors clarify which restrictions are truly enforceable, explain any tax consequences, and provide strong, practical strategies to negotiate or remove inappropriate clauses before you sign. Every agreement is different, and you should never accept tough new restrictions without knowing exactly how they affect you.
Our service is completely free to you as the employee, thanks to employer-paid fees. All advice is from SRA-regulated settlement agreement solicitors, and you can access same-day remote appointments for independent legal advice, review, and negotiation—all without having to visit an office.
Take control before you sign. Call us now on 0800 054 1144 to speak directly with our settlement agreement solicitors, or book your settlement agreement advice online for a same-day remote ILA appointment.
