Non-compete clauses in employment contracts

Earlier this year the government published its consultation response on non-compete clauses in employment contracts. It proposes that the maximum period of a non-compete clause will be reduced to three months and that the employee must be paid for the duration of the non-compete, potentially providing employees with more freedom and flexibility over their next job move. However, for employers who are concerned about employees moving to rival companies, this change may leave them wondering if they can prevent staff from joining a competitor’s company.

There are no regulations on former employees joining a competitor’s company, nor are there any laws on competitors headhunting your staff. The general principle is that employees are free to work where they choose and can leave their employment at any time, merely by giving the length of notice that is set out in the employment contract.

However, when an employee hands in their notice, the first step is checking the terms of the employment contract or any agreement that you might have had to check for any restrictions on this type of behaviour after their exit from the business.

Non-compete clauses

In terms of prevention, there may be a clause in the employee’s employment contract which prohibits them from going to work for a competing business for a specified period of time after their employment comes to an end (a non-compete). However, there is no general right to stop an employee from working for a competing business per se. A non-compete must be limited in scope and duration and should only go as far as is needed to protect the legitimate interests of the business, which might include confidential or price-sensitive information gained by the employee as a result of working in the business that could give a competing company an unfair advantage.

There is also no guarantee of success when it comes to enforcement. It is possible to seek an injunction prohibiting an employee from working for a competitor, but given the uncertainty and expense involved, it is generally a remedy used only for high-profile market players or teams of employees, by large businesses with deep pockets. Ultimately, the best approach is to focus on minimising the impact of an employee leaving.

Alternatives to non-compete clauses

Prior to their departure, if there is a garden leave clause in the employment contract, an employer can require the employee not to attend the office or contact any clients or customers for the duration of their notice period. Garden leave requires the employee to stay away from the workplace, or work remotely during the notice period, whilst still getting paid.

This can be beneficial as the employer has the opportunity to take pre-emptive action such as reallocating the employee’s clients or customers, offering incentives or discounts, launching new products earlier than planned, or following up on any business that might have been in the employee’s pipeline. It also means that any sensitive information that an employee holds might become less critical and potentially less damaging to your business during the time they spend out of the market.

Once an employee has left, the employer may be able to rely on a clause in the employment contract that prohibits them from dealing with their former clients or customers for some time after their departure. Action can be brought against the employee, or even the new employer if they can be shown to have induced the employee to breach their contract. However, this again leads to problems of enforcement requiring evidence of the alleged behaviour, as well as proof that quantifiable loss has actually been caused, which can be no easy task.

In practical terms, a strongly worded letter reminding employees of their continuing obligations of confidentiality and outlining any restrictions on them can be a good deterrent.

Finally, focus on making the business a great place to work so that ultimately staff will stay on because they want to.

If you have questions about a non-compete clause in an employment contract, please contact Emma Wayland.