Restrictive covenants and non-compete clauses (sometimes known as post-termination restrictions) are clauses within a contract of employment or a Settlement Agreement which prevent a leaving employee from taking clients or key employees from their former employer, or working for a competitor. An employer can only protect a legitimate business interest and the restrictions must be tightly defined in order to be reasonable.
The most common types of restrictions are:
These restrictions make it unlawful for you to divulge sensitive information about your employer or its clients.
These clauses will mean you cannot approach your employer’s existing clients or staff after your employment has ended.
This type of restriction will prevent you from doing business with your employer’s existing clients after you leave. This could be a problem if, when you leave your job, you are likely to have a loyal ‘following’ of customers.
This clause has broader implications than the others because it prevents you from leaving your employer to work for a company that they compete with. This clause would also prevent you from leaving your employment to set up on a freelance basis, doing work in the same field
Non-compete clauses and restrictive covenants are highly enforceable in the UK in order to protect the business the employee is leaving. They have to be narrowly defined and should only stay enforced for the time that is required to protect the business.
No. You are entitled to tell your employer that you do not accept the covenants and ask them to either amend or remove the covenants altogether. However, post-termination covenants are a common feature of many contracts and, ultimately, your employer might not be prepared to alter them and your job offer could even be withdrawn
If you start work but do not wish to agree to the covenants, it is important that you tell your employer straightaway, preferably in writing. Otherwise, you will be regarded as having accepted them.
No. You are never obliged to agree to post-termination covenants.
However, if your employer feels very strongly about them, you may need to consider the consequences of disagreeing. Employees with less than two years employment under their belt have minimal job security as they usually do not have the right to bring claims of unfair dismissal. If your employer dismissed you for refusing to sign the covenants, you are unlikely to be entitled to claim unfair dismissal. On the other hand, if you have worked for your employer for two years or more, you would be entitled to bring a claim for unfair dismissal if you were dismissed for refusing to agree to the covenants. Whether the dismissal was found to be unfair would depend on the facts of the case.
If there is a non-compete clause in your contract then you might be prevented from setting-up in business on your own account. This will depend upon whether the clause has been validly agreed, whether it is necessary to protect your employer’s legitimate business interest, and also whether it is reasonable. Finally, it may depend upon why you wish to leave your job.
If you are concerned that your plans to set up your business might breach the non-compete covenant then you should seek specialist legal advice to make sure you understand the potential risks. It is best to seek advice before you resign or start investing in your new business.
In most cases it is difficult for an employer to show that a covenant which would prevent you from working with a competitor for up to 12 months after you leave is reasonable. However, it will always depend upon the nature of your employer’s business, your position in the company, any geographical restraints and also what legitimate business interest your employer is trying to protect. In some situations, a non-compete clause lasting 12 months will be reasonable.
Yes, you might be able to persuade your employer to waive or vary some or all of the covenants. For example, if you are a valuable employee proposing to give notice at a difficult time. Whether or not your employer agrees is likely to depend upon what role you have in the business, how successful you are, and how influential you might be at winning clients on behalf of a competitor.
It is not unusual for employers to include post-termination restrictive covenants in a Settlement Agreement. This might be because they consider you a threat to their business, because the existing post termination covenants are not effective, or because they have breached your contract of employment and, as such, there is a danger that the covenants might become unenforceable.
If you are offered a Settlement Agreement, it is important to always consult a specialist Settlement Agreement solicitor. They will investigate why you have been offered the Settlement Agreement, consider any post-termination restrictions and advise how they might affect you. They may also be able to help you negotiate a larger sum of compensation from your employer in exchange for the post termination restrictions.
Breaching post-termination restrictions can be a serious matter and this is why it is important to seek advice before you do anything which might expose you to a risk of claims.
Your employer may threaten you with court action unless you stop working with their competitor or stop dealing with their clients. It is usual for employers to ask you to make undertakings before any action is taken in the High Court. They may also write to your new employer to point out that you have breached your covenants and threaten to seek an injunction if you are causing them lost business.
If you ignore their request, they might then apply to Court for an injunction. If successful this could result in huge costs. Not only would your own legal costs be significant, but your employer would also be able to recover their own costs as well. Your employer would have to show that they have sufficient evidence of a breach or potential damage to their business to justify taking such a draconian step.
Your former employer could claim compensation if they have suffered any losses – for example, if you have persuaded customers to do business with you or your new employer instead of your former employer. If you have set up your own business, your former employer might claim an account of profits.
For all these reasons it is strongly advisable to seek specialist employment law advice if you are concerned that your career plans might lead you to breach your contract.