Table of Contents
In Short
- What is a Non-Compete Clause? A non-compete clause restricts an employee from joining a competitor for a set time after leaving your business, typically 3–12 months, and may include geographical limitations.
- Benefits for Employers: Protects trade secrets, retains key staff, and reduces competition risks.
- Enforcement Challenges: Clauses must be reasonable and protect legitimate business interests to be enforceable.
Tips for Businesses
When including a non-compete clause in contracts, ensure it is proportionate in terms of duration, scope, and geographical area. Clearly define the legitimate business interests you are protecting, such as client lists or trade secrets. Seek legal advice to draft enforceable clauses and understand your options if a breach occurs.
As a business entering into employment contracts, you should be aware of the options available to prevent competitors from poaching your employees. One common post-termination restrictive covenant in employment contracts is a non-compete clause, which prevents an employee from moving to a competing business for a defined period after their employment is over. Using a non-compete clause can help protect your business. Still, if you plan to include one in an employment contract, you must understand the law in this area and the difficulty in enforcing it in practice. This article will explain what a non-compete clause is and touch on some key points to keep in mind about different types of non-compete restrictions.
What Is a Non-Compete Clause?
A non-compete clause (sometimes referred to as a restrictive covenant) is a contractual clause that stops an individual from entering into an agreement with a competing business once the employment relationship is over. It is also helpful to note that non-compete clauses can be used for contractors such as external consultants hired to assist with a project.
Non-compete clauses typically specify the length of time an employee cannot work for a competitor if they leave your company (usually 3 -12 months). Some restrictive covenants may also include restrictions preventing an employee from working in a specified area, usually a specified radius around your business.
Advantages of Using a Non-Compete Clause
Employers can clearly benefit from using a non-compete clause. It can help them retain key employees, protect trade secrets and confidential information, and prevent talent from leaving for a competing business.
Non-compete clauses can also incentivise employees to stay in their positions in the long term.
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What Happens if an Employee Breaches a Non-Compete Clause?
A non-compete clause is a legally enforceable term of an employment contract if both parties agree upon it. As a result, you can take your case to court in an attempt to enforce it or seek damages from the breaching party. However, a court will only enforce a non-compete clause if the terms are reasonable. For example, if the non-compete period is excessively long or there is no legitimate business interest in having non-compete restrictions, a court may be reluctant to enforce it.
Following a breach, you should consider:
- writing to the employee to let them know that they are in breach of the non-compete clause, and ask them to refrain from continuing to breach the provision. If appropriate, you can also write to the employee’s new employer to make them aware of the non-compete clause; and
- if they continue to breach the restrictions, you may wish to seek legal advice on how to enforce the terms in court.
To have a successful case in enforcing a non-compete clause, you will also need evidence that the actions of the breaching party are hurting your business in some way. This is likely the case if the court accepts that the employee has moved to a competing company and is harming your profits, which could be shown by demonstrating that you have similar clients or work in the same industry.
Changes in the Law
Finally, despite the previous Government undertaking a consultation in 2023 about potentially reducing the scope of non-compete clauses in employment contracts to 3 months, there appears to be no development in this area. However, with the new Labour Government unveiling their new Workers’ Rights Bill, monitoring whether any changes are still on the cards will be necessary.
Key Takeaways
A business should consider including a non-compete clause in employment contracts to prevent key employees from moving to competing companies.
A non-compete clause restricts an individual from working for a competitor for a specific time after leaving your business. If an employee breaches a non-compete clause, you may have grounds for taking them to court. A court could oblige them to stop breaching the term, and you may also be able to have your legal costs covered.
If you need help understanding the key terms of a business contract in England, LegalVision’s experienced employment lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
A clause that prevents an employee from working in their profession entirely is likely to be considered unreasonable and, therefore, unenforceable.
Reasonableness is determined by factors such as the duration of the restriction, the geographical area covered, and the scope of activities prohibited. The clause should go no further than necessary to protect the employer’s legitimate business interests.
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