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Government call for evidence on the use of non-compete clauses

30th April 2016

The Government has issued a request for evidence on the use of non-compete clauses in contracts of employment. Their apparent concern is that the use of such clauses may be a restriction on innovation in the UK. It comes as something of a surprise that the Government should wish to look at this issue, as the use of contractual restrictions on future competitive activities by employees has been commonplace for many years. The relevant case law on this topic proves this fact, as it extends over the whole of the 20th century as well as in the current one.

There are many myths surrounding the topic of non-compete clauses; some people and businesses think that such clauses can never be enforced and some people and businesses think that all forms of restrictions can be enforced.

From our experience your attitude towards these types of restrictions depends very much on your own personal circumstances, and the stage of your job or profession that you have reached. The fact is that there will always be competing views and arguments over this subject. For example, a businessman may wish to protect the legitimate interests of his business in good faith, so will seek to secure restrictions on his staff so that they do not leave and set up in direct competition (developing the ideas, products, or inventions that their employer had been developing- often at significant cost in time and money and investment). But that same businessman may be very keen to recruit an individual that has considerable useful knowledge and skills, and be annoyed when they find that the individual is restricted from working for them or using particular skills because they are bound by a similar restriction under the contract with their former employer.

It is ironic perhaps that in that situation the new employee is highly likely to be asked to sign a similar restriction in the contract with the new employer too!

The view that the courts have taken is that restrictions may be enforceable if they protect a legitimate business interest, and that the scope of the restriction does not go beyond what was necessary to protect those interests. Matters such as the duration of the restriction, and the geographical cover are relevant in deciding such matters.

The most common real problem is that employers have taken short cuts when looking at this issue, and have used clauses that are generic (perhaps taken from contracts for other members of staff, taken from the internet, or from other contracts they have seen used by other companies and businesses). It should hardly come as a shock to an employer when they meet a problem trying to enforce such restrictions if they failed to take the take and effort in the first place in tailoring the restrictions to the employee in question.

There is simply no single model that fits all cases. In our experience we see examples where a junior employee has signed a "standard" contract which includes restrictions designed for senior staff, imposing a range of restrictions on them that are not suitable or relevant, and similarly we see contracts where the restrictions on senior staff are inadequate, poorly drafted, or may be relevant to one senior employee but not one that has performed a significantly different function in the business.

The clear solution for employers is to seek advice on the specific case in question as and when the need arises- at least that way there is hope that the correct issues will be highlighted and addressed appropriately. 

In reality, very few disputes on this subject reach the courts, with both sides preferring to reach some form of settlement and avoid the costs and risk of litigation.

However, a "call for evidence" on this subject is unlikely to produce a clear or unanimous response, due to the competing issues faced by businesses and individuals at different point in the recruitment process and different points in the life of the business or career of the individuals.

If you need advice on any of the issues raised in this article do not hesitate to contact us at Hallett Employment Law Services Ltd.    

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