Hiring Guide

Restrictive Covenants in Financial Services: What Every Recruiting Manager Needs to Know

In today’s competitive market for financial services talent, restrictive covenants are more than legal fine print — they are a critical consideration in every strategic hire.

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Please note: This article is not legal advice. It is a summary of insights shared during a recent legal workshop. We strongly recommend seeking independent legal advice before making employment-related decisions.

At Ortus PSR, we work closely with professionals and firms across the financial services sector. One increasingly important issue in recruitment and retention is the use — and enforcement — of restrictive covenants in employment contracts.

With the UK government actively consulting on reform of non-compete clauses and courts continuing to shape the enforceability landscape, understanding restrictive covenants has never been more important for financial services hiring managers and recruitment professionals.

Types of restrictive covenant

12 mo

Typical maximum for senior IFAs

2025

Gov’t reform consultation underway

What Are Restrictive Covenants?

Clauses designed to protect a business’s commercial interests when an employee leaves — but only enforceable if they meet strict legal tests.

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Non-Compete

Prevents the employee from joining a competitor or setting up a competing business for a defined period after leaving.

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Non-Solicitation

Prevents the employee from actively approaching former clients, customers or colleagues after departure.

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Non-Dealing

Goes further than non-solicitation — prevents any business contact with former clients, even if the client approaches them first.

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Confidentiality

Prohibits the use or disclosure of sensitive business information — client data, pricing, strategy — after the employment ends.

✅ To be enforceable, a restrictive covenant must be:

•Tied to a legitimate business interest
•Reasonable in scope, duration and geography
•Judged for reasonableness at the time of signing — not at the time of dispute
•Supported by adequate consideration — especially in post-employment contract changes

Recent Case Law: What Recruiters Should Know

The courts continue to shape the enforceability landscape. Here are four key cases with direct implications for financial services hiring.

Case	Key Principle	Practical Implication
Jump Trading	Undue delay in enforcement weakens a case	Act quickly if a covenant may have been breached — delay can be fatal to enforcement
Allen	Employers and recruiters can be liable for knowingly inducing a breach	Always ask candidates about existing restrictions — and document that you did
Tillman v Egon Zehnder	The “blue pencil” test — courts can remove unreasonable parts while preserving the rest	Don’t assume an overly wide covenant is fully unenforceable — part of it may still hold
Boydell v NZP	Clauses must be tightly focused on genuine business interests	Broadly drafted covenants are vulnerable — precision and proportionality are essential

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Key insight: The UK government published a working paper in November 2025 actively consulting on restricting or capping non-compete clauses — including an outright ban in some circumstances. The enforcement landscape is evolving rapidly. Now more than ever, firms should audit their existing covenants and ensure they are fit for purpose.

Practical Tips for Recruitment Professionals

Whether you’re advising clients or screening candidates, a proactive approach is essential.

✅ Recruiter checklist — do this on every hire:

•Start early — discuss restrictive covenants, notice periods and garden leave at the very start of the hiring process
•Seek legal input — never assume a clause is unenforceable; get a solicitor’s view where there is any doubt
•Document everything — be mindful of privilege in written communications and who bears legal costs if a dispute arises
•Ask candidates directly — confirm in writing that you have made enquiries about existing restrictions
•Act swiftly — if a potential breach is identified, delay can undermine enforcement

Beyond Covenants: Other Legal Risks in Financial Services Hiring

Restrictive covenants are just one part of the risk landscape. Recruiters and hiring managers should also be alert to these.

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Confidential Information

Misuse of client databases, strategic plans or proprietary information — even without a formal covenant in place.

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Fiduciary Duties

Breaches of duty of fidelity or fiduciary obligations — particularly relevant for senior advisers and client-facing roles.

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Inducement Claims

Potential exposure to claims of inducing a breach of contract — or in serious cases, conspiracy. Recruiters are not immune.

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Client Poaching Risk

In financial services, the exceptionally strong adviser-client relationship means client poaching claims carry particular legal weight.

✅ Final Thoughts

In today’s competitive market for financial services talent, restrictive covenants are more than legal fine print — they are a critical consideration in every strategic hire. As recruiters, we must understand the landscape, ask the right questions, and when in doubt, encourage clients and candidates alike to seek proper legal guidance.

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Understanding Restrictive Covenants