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Restrictive Covenants: Preventing unfair competition from former employees

restrictive covenants employee competitionMany Contracts of Employment contain clauses designed to prevent former employees from taking unfair advantage of the contacts they have created during their employment to compete with their former employer after they leave. They are often known as restrictive covenants, or post termination restrictions.

Because such clauses are a restraint of trade, i.e. they restrict the former employee’s ability to find alternative work or set up their own business, they will only be enforced by a court if they do no more than reasonably necessary to protect the employer’s legitimate interests.

It’s important then to make sure that restrictive covenants are drafted carefully with each business and indeed each role in mind, to ensure that they provide the protection the business needs, without going so far that they are not enforceable. We do just that: getting to know you and your business before advising what is likely to work and not.

If employees do begin to compete after they leave, we can advise on your options and take steps to enforce clauses through the courts if necessary.

If you require legal advice of assistance relating to restrictive covenants, book an initial consultation with one of our experienced Employment Law Solicitors by calling 0800 086 2929, emailing info@elitelawsolicitors.co.uk or by completing our Free Online Enquiry Form.

What is a non-solicitation clause?

Non-solicitation clauses prevent attempts to entice customers, clients, suppliers and/or colleagues to move with the former employee to a new employer or new business.

What is a non-dealing clause?

Non-dealing clauses go further than non-solicitation clauses and prevent any business dealings with customers or clients at the new employer or new business. This removes the need to prove that the former employee initiated the move.

What is a non-compete clause?

Non-compete clauses prevent the former employee working for or setting up in business as a competitor.

What are the “legitimate interests” restrictive covenants can protect?

Trade connections with clients, customers and suppliers, confidentiality and a stable workforce are all generally considered to be legitimate interests.

What types of restrictive covenants are enforceable?

Generally, the lesser the impact on the employee, the easier it is to persuade a court that the restrictions are reasonably necessary – so a non-solicitation clause is more likely to be enforced than a non-dealing clause. Non-compete clauses are the hardest to enforce, because restricting competition per se is not considered a legitimate interest. However, they may be appropriate if they are the only way to stop the employee gaining an unfair advantage by exploiting their former employer’s confidential information or customer connections.

Ultimately, we need to consider the interest you are seeking to protect and what is reasonably necessary to prevent that unfair advantage. This will depend on the particular circumstances: the employee’s access to information or contacts and the influence the employee might have over clients, customers, suppliers and colleagues.

It is common to see a variety of separate restrictions, i.e. non-solicitation, non-dealing and perhaps even non-compete clauses set out in a Contract of Employment. This enables the employer to rely on non-solicitation and/or non-dealing clauses in the event that more restrictive clauses are found not to be enforceable.

How long can restrictive covenants last?

Part of the assessment as to whether or not a restrictive covenant is reasonably necessary to protect a legitimate interest is the length of the restriction. The longer the period of time that has elapsed since the employment terminated, the less the competitive advantage the employee might have in approaching a customer or setting up a competing business. What is reasonably necessary will depend on the particular circumstances: the industry sector, the role and the influence the employee might have over clients, customers, suppliers and colleagues.

For how long can we prevent former employees from working for a competitor?

Non-compete clauses are much more restrictive than non-solicitation clauses and non-dealing clauses and so are generally shorter in duration in order to meet the test of being reasonably necessary.

In May 2023, the government announced an intention to introduce a statutory cap of 3 months for non-compete clauses in Contracts of Employment. However, there is currently no timeframe for the introduction of this legislation. Until then, each clause will need to be examined to assess whether it is indeed reasonably necessary to have a restriction of that length.

Can we stop our competitors poaching our best people?

Competition per se is not considered a legitimate interest that can be protected by restrictive covenants. This makes it harder to justify clauses that prevent employees simply joining a competitor, rather than contacting or dealing with clients. That said, non-solicitation and non-dealing clauses might well make a potential hire less attractive – if they can’t contact or deal with certain clients for a period of time.

It is also possible to include clauses that prevent “team moves” – a number of staff leaving and joining the same organisation together – as a “stable workforce” is considered a legitimate interest.

How Elite Law Solicitors can help with restrictive covenants and employee competition

As an employer, it is important to make sure that restrictive covenants are drafted carefully with each business and indeed each role in mind, to ensure that they provide the protection the business needs, without going so far that they are not enforceable. At Elite Law Solicitors, we do just that: getting to know you and your business before advising what is likely to work and not.

If employees do begin to compete after they leave, our experienced Employment Law Solicitors can advise on your options and take steps to enforce clauses through the courts if necessary.

If you require legal advice of assistance relating to restrictive covenants, book an initial consultation with one of our experienced Employment Law Solicitors by calling 0800 086 2929, emailing info@elitelawsolicitors.co.uk or by completing our Free Online Enquiry Form.

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