In this article we have a look at:
- What is a non-compete clause?
- What could a non-compete clause mean for you?
- Can you escape from the effect of a non-compete clause?
- What should you do if you are bound by a non-compete clause?
What is a non-compete clause?
A non-compete clause is a contractual clause (conventionally contained within the contract of employment) which seeks to prevent former employees from working for ‘competitors’ of their previous employer.
These clauses are common in work-related contracts, whether these are contracts of employments or contractors’ agreements. We will focus in this article on how non-compete clauses affect, or attempt to affect, employees leaving their employment.
What could a non-compete clause mean for you?
If there is a non-compete clause in your contract of employment then it might prevent you from working for another company which is, or might be, competitive with your employer for a certain period of time after your employment terminates.
Whether you will as a matter of fact and law be bound by a non-compete clause in your contract will depend upon a number of criteria including, but not limited to, the following:
- Does your (previous) employer have a legitimate business interest which requires protection?
- What is the non-compete clause trying to achieve?
- Is the non-compete covenant no wider than is reasonably necessary for the protection of the employer’s legitimate business interests?
The courts have traditionally viewed non-compete clauses as “the most powerful weapon in an employer’s armoury” (Patsystems Holdings Ltd v Neilly  EWHC 2609 (QB)) but have recognised that other types of protections (such as confidentiality clauses and non-solicitation clauses) may not be sufficient to protect an employer’s interests.
A non-compete clause is normally likely to be enforced in particular circumstances (please note that this list is not exhaustive):
- It might not be possible to protect a legitimate commercial interest (such as, for example, a particular manufacturing process) through confidentiality terms
- An employee’s influence over customers or suppliers might be so great that the only effective protection would be to ensure that they are not employed by a competing business for a period of time post-termination
Can you escape from the effect of a non-compete clause?
Whether you will be bound by the terms of a non-compete clause will depend on a number of factors, including:
- Whether your employer has a legitimate business interest that it is attempting to protect;
- How the non-compete clause is drafted and the effect that the non-compete clause seeks to achieve;
- Whether the effect of the non-compete clause is, in all the circumstances, reasonable, taking into account a variety of factors including (but not limited to) how ‘broadly’ the clause is worded; the geographical scope of the clause; and the duration of the clause
Generally, the more limited the effect of the clause (in terms of its geographical scope, effect, and duration), the more likely the clause is to be enforced by a court. However, the court will also look at the following factors, among others:
- The seniority of the relevant employee when they entered into the contract;
- What period of notice the employee is bound by;
- What confidential information the employee had access to;
- What other clauses the employee is bound by under the contract of employment (for example, confidentiality clauses, non-solicitation clauses, non-dealing clauses, non-interference clauses etc.)
What should you do if you are bound by a non-compete clause
If you are bound by a non-compete clause then you should normally take the following steps:
- Carefully analyse what clauses you are bound by under your contract of employment;
- Keep copies of the contracts that you are bound by, as well as any other relevant evidence (emails with your employer, text messages, notes of meetings etc.);
- Seek legal advice from a specialist legal adviser;
- Show the non-compete clauses to any new employer during the period of the restrictions (particularly if they are likely to be a competitor of your previous employer);
- Respond promptly and fully if you are threatened with legal action – burying your head in the sand will generally make the situation worse