Should businesses be able to stop their employees going off and competing against them?

The government has launched a call to evidence asking for information on the use and effects on non--compete restriction in contracts

Restrictions might stop an employee for a period from trying to solicit (poach) clients or staff (Getty Images)

The government is not sure. It has launched a call to evidence asking for information on the use and effects of non-compete restrictions in contracts.

The concern is that non-compete restrictions could be stifling entrepreneurial growth and preventing employees from leaving work to set up on their own. While employers need to safeguard their interests, employees shouldn’t be disadvantaged when looking to move on and try their own luck at business.

But don’t our existing laws already strike a balance between the interests of the employer and the individual or have I missed something?

The clauses that are on the government’s radar are often known as restrictive covenants or post-termination restrictions. A restriction could, for instance, prevent an employee for a certain time from going to work for a competitor or setting up in competition. This is a non-competing restriction in the literal sense. However, there are other restrictions which do not specifically prohibit the employee from competing but do limit what they can and can’t do.

Restrictions might, for example, stop an employee for a period from trying to solicit (poach) clients or staff of the former employer or deal with their clients, whether the employee poached them or not.

The general rule is that the restriction is only enforceable if it goes no further than reasonably necessary to protect legitimate business interests.

Whether the clause is enforceable will depend on the circumstances. Factors which might be relevant could include the type of business involved, the seniority of the individual concerned, their access to clients and confidential information and the length of the restriction.

It’s common practice for restrictions to last between 3 and 12 months. A restriction in excess of 12 months is likely to be unenforceable – though 12 month restrictions have been upheld. Each case will be considered on its facts.

The important thing to remember is that an employer cannot rely on a restriction if a less onerous one would have adequately protected its business interests.

Let’s take for example a restriction preventing an employee for 6 months from poaching clients that they were involved with in their last year. It may sufficiently protect a company selling widgets if within those 6 months the company has had enough time to secure the client relationships through a new salesperson.

In those circumstances, an additional restriction prohibiting the employee from joining a competitor is likely to be unenforceable because it would go beyond what was required.

There will be some situations though when a non- competing restriction might be justified – say because of the difficulty in policing a non-poaching restriction. It may be necessary if the employee is very senior and has had access to highly confidential information. It could be argued that their mere presence at a competitor will damage their former employer and that the former employers’ clients will follow the departing employee to their new company irrespective of other restrictions.

Advocates for change may, rightly, point out that employees already have separate obligations of confidentiality, and are prevented from disclosing their employer’s trade secrets and customer lists.

With redress through the Courts for breaches, why the need for non-competing restrictions? What about protecting employers’ trade connections though? Should these be protected? And if the law as it stands works – and the Courts are able to consider the restrictions in each case and determine whether they go further than what’s necessary, why bother changing anything?

Matt Gingell is a partner at Gannons Solicitors, and specialises in employment law. Read all of his articles at www.mattgingell.com