A ‘No’ for Non-Compete Reforms?

The King’s Speech in November failed to mention the governments previously stated intention to reform the law in relation to non complete clauses in employment contracts.

The plan had been to limit such restrictions to three months duration meaning that after that relatively short period an ex-employee could go and work for a competitor.  Making that change needs new legislation and the lack of any mention of it in the King’s Speech seems to indicate that this area is no longer a priority for the government.  In addition, it is unlikely to be actioned by a new Labour government which will have its own planned reforms to focus on.

Currently to ensure any non-compete restriction is enforceable it needs to be drafted so as to protect a legitimate business interest and be limited in time and geographic scope.  It is estimated that over 5 million employees have these clauses in their contracts and the courts always try to interpret these in the way most favourable to the employee, rather than the employer.  That being the case, it is always worth looking at other ways to keep key employees off the market for a reasonable amount of time in order to protect a business.  These include:

• Garden Leave – make sure contracts include a clause allowing the employer to require an employee to stay at home during their notice period but remain as an employee and therefore not able to work for anyone else.
• Length of Notice Period – including a lengthy notice period that will include garden leave is one way of extending the period during which a key employee can’t work for a competitor.  If there is a notice period of 6 months and then a non-compete for 6 months then the employee would be “on the bench” for a year.  The drawback is that employers need to pay employees in full any of their notice period.
• Confidentiality Restrictions – including a clear restriction on the use of confidential information at any time for anything other than carrying out their duties at any time is always wise and making it clear that includes the period after employment ceases is helpful.  Such restrictions can be hard to enforce due to lack of evidence, however an audit of IT systems on the exit of an employee can help identify confidential information that has been transferred to personal email or other accounts in contravention of the employers confidentiality policy. Requiring an ex-employee to flag the existence of such a clause to any new employer is also an option.
• Non-Solicitation – provisions preventing solicitation of customers and key employees should be included in contracts and should be tightly drafted to address only the key customers/employees and to apply for as short a time as possible.

In other countries, such as the USA, there is a move to ban non compete clauses completely. In a flexible and fast moving labour market they are seen as unduly restrictive.  Although that indicates the general direction things are moving in, given that UK reform seems to have stalled, employers should continue to include such restrictions in employment contracts. However, it is worth thinking carefully about exactly what it is that needs to be protected and how best to do that in order to ensure whats drafted will in fact be enforceable. Getting rid of non compete clauses totally in some contracts might be a worthwhile option.

If you have any questions about non-compete clauses please contact your contact in the Corporate team.

Disclaimer
The matter in this publication is based on our current understanding of the law.  The information provides only an overview of the law in force at the date hereof and has been produced for general information purposes only. Professional advice should always be sought before taking any action in reliance of the information. Accordingly, Davidson Chalmers Stewart LLP does not take any responsibility for losses incurred by any person through acting or failing to act on the basis of anything contained in this publication.