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Employment: Are non-compete, post termination restrictions enforceable?

It’s a common view that non-compete clauses, commonly used by employers to protect them if an employee leaves, are not worth the paper they are written on.

However, if properly drafted and reasonable in terms of protecting an employer’s business interests, a court can and does enforce such agreements.

The High Court recently held that a solicitor, who’d signed a non-compete restrictive covenant in a service agreement, could indeed be prevented from joining a competitor, a larger national law firm, for 12 months.

Crucially, the court decided that not only did her former employer have a legitimate business interest to protect but that the restrictions were no wider than reasonably necessary.

What exactly are post termination restrictions?

Restrictive covenants and non-compete clauses (also known as post termination restrictions) are often written into a contract of employment or settlement agreement.

They seek to restrict the departing employee’s subsequent business activities in a way that might be commercially harmful to the employer. This might include taking confidential information, client lists and business tactics, or other employees, to a competitor.

Other common types of restrictive clauses cover general confidentiality, non-solicitation and non-dealership.

Are all post termination restrictions legally binding?

No. An employer can only protect a legitimate business interest and the restrictions must be tightly defined to be deemed reasonable.

This is because a court will look at what is known as the doctrine of restraint of trade. In short, the employer needs to show it has a legitimate proprietary interest to protect and that this protection is reasonable in the circumstances.

If the court considers a non-compete clause too wide and restrictive, there is a real risk it will be judged unreasonable and therefore unenforceable.

Is the law changing?

Possibly. Six years ago (2016), the government began looking at whether post termination restrictions are too limiting with several adjustments up for consideration:

  • Making non-complete clauses enforceable only when the employer provides compensation for the prohibited period;
  • Obliging employers to disclose the exact terms of a non-compete clause, in writing, at the start of an employment;
  • Introducing a statutory limit on how long a non-compete clause can last;
  • Banning non-compete clauses altogether.

The results of this consultation, according to MP Paul Scully in March this year (2022), will be published ‘in due course’.

Get in touch

The key with provisions of this type is to make sure they are reasonable, drafted appropriately and tailored to reflect the needs of both parties.

As each case must be considered on a case-by- case basis, and certainly according to business type, it’s essential that both employers and employees understand their rights and obligations under such clauses.

Taking specialist legal advice is key, particularly when considering the effect on any future career plans.

Partner James Taylor is highly experienced and part of Wards Solicitors’ specialist employment team, representing both individuals and businesses. This allows him to have a clear understanding on how to conduct and approach any dispute.

If you have any queries about this area of the law, please contact James Taylor:

Or Assistant Solicitor, Laura Ramos, an experienced employment disputes litigator:

 

 

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