Protecting Your Commercial Edge: Understanding Restrictive Covenants in Commercial Contracts

March 23, 2026

What would you do if a former contractor walked away with your biggest customer?

In a market defined by rapid innovation, talent mobility and increasing competition, businesses face growing pressure to protect their commercial advantage. Most businesses underestimate how easily their commercial advantage can walk out the door.

Whether safeguarding client relationships, confidential information or key personnel, the legal landscape is becoming more complex; especially as supply chains globalise and digital transformation accelerates.

    What are restrictive covenants?

    In this environment, a proactive approach to commercial contracting is no longer optional. It is central to business resilience and growth. One of the most effective tools available is the restrictive covenant: a contractual clause designed to prevent one party from acting in a way that causes commercial harm to the other.

    Drafting restrictive covenants in commercial contracts

    A single clause in your contract could be the difference between protecting your business and losing your competitive edge.

      Yet while restrictive covenants can be powerful, they must be drafted with precision to be enforceable. This article explores common forms of restrictive covenants, emerging trends impacting their use, and how businesses can strategically deploy them to protect their commercial interests. As this article concentrates on restrictive covenants in commercial contracts, those seeking an employment‑focused comparison may find the following article here, a useful point of reference.

      How Restrictive Covenants Protect Your Business

      Restrictive covenants come in several forms. Each offers a different type of protection, and the appropriate combination will depend on the nature of the commercial relationship.

      • Non-solicitation of employees or contractors: This prevents one party from enticing away the other party’s personnel. It protects the stability of project teams and reduces the risk of losing key individuals with valuable know how.
      • Non-employment clauses: These strengthen non-solicitation provisions by prohibiting the other party from hiring your key personnel at all, whether or not solicitation can be proven.
      • Non-poaching of customers: This prevents a party from approaching your customers or prospective customers with the intention to win their business. It preserves revenue streams and safeguards goodwill.
      • Non-dealing clauses: A stronger form of customer protection. Non-dealing clauses prevent the other party from doing business with your customers even if the customer initiates contact. They are invaluable where solicitation may be difficult to prove.
      • Supplier protection: Non solicitation of suppliers protects the continuity of your supply chain by preventing approaches that could disrupt supply arrangements or jeopardise access to essential goods or services.
      • Non-compete clauses: These clauses prevent the other party from carrying out competing activities during or after the contract term. As they restrict lawful trade, they must be drafted appropriately and supported by clear commercial justification and must not full foul of relevant competition laws. The restriction could be limited to an appropriate territory, or apply only to relevant services, and should last no longer than necessary as well as adhering to legal restrictions on length and scope.
      • Non-association and non-disparagement: These protect your brand and reputation by preventing misleading claims of affiliation or statements that could damage your commercial standing.
      • Non-circumvention: These clauses prevent a contracting party from bypassing you to pursue the same opportunity independently. They are particularly important in collaborative projects and joint ventures where parties share customers, contacts or technical knowledge.
      When are restrictive covenants enforceable : Getting the Balance Right

      To be enforceable, a restrictive covenant must protect a legitimate business interest and go no further than reasonably necessary (for example in its duration, scope, and geographical reach), otherwise it risks being struck out as an unlawful restraint of trade or treated as anti‑competitive under UK and EU competition rules.

      In practice, this means businesses must justify why the restriction is needed, ensure the time period is no longer than required (with longer or indefinite terms viewed sceptically), limit activities to those genuinely posing a competitive threat, and match the geographic area to where the business actually operates or has clear, evidenced plans to expand.

      Courts assess substance over form, focusing on proportionality and commercial justification, and will not enforce covenants that sterilise legitimate trading activity or reach beyond what is required to protect goodwill, confidential information or customer connections.

      Common Pitfalls when drafting restrictive covenants

      Despite their value, restrictive covenants are often mishandled. Typical issues include:

      • Using untailored boilerplate: Covenants must be narrow and justified. Overly broad restrictions are vulnerable to challenge.
      • Relying too heavily on non-compete clauses: Non competes attract attention but are not always the most enforceable tool. Alternatives such as non-solicitation, non-dealing and non-circumvention clauses could provide better protection.
      • Unclear definitions: Terms like Restricted Customer or Restricted Person need precise definitions to avoid ambiguity.
      • Not covering group companies: Many businesses operate through multiple entities. Unless the drafting extends protection to group companies, gaps may remain.
      How we can help your business with restrictive covenants

      Sector‑led expertise
      We work with businesses across technology, manufacturing, retail, life sciences and professional services, allowing us to draft restrictions tailored to your industry’s dynamics; not generic boilerplate.

      Commercially grounded advice
      Restrictive covenants are a balancing act: strong enough to protect your interests but narrow enough to be enforceable and agreeable. We ensure this balance is achieved.

      A proactive, partnership‑driven approach
      We don’t just respond to risk; we help you anticipate it. By understanding your strategy, growth plans and operational pressures, we design legal protections that evolve with your business.

      Whether you’re negotiating a technology platform agreement, a manufacturing contract or a service‑based supply deal, we help ensure your contract manages risk, not create it.

      Get in touch today to discuss how we can help you and your business.

      Cesare McArdle
      Partner, Commercial & Construction
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      This reflects the law and market position at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought in relation to a specific matter.

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