Proposed Limitations to Non-Compete Clauses

Proposed Limitations to Non-Compete Clauses

Earlier this month, the Government announced their plans to propose a change to the way non-compete restrictive covenants operate post-termination.  In short, they want to reduce your ability to stop staff stealing your business.

What are Restrictive Covenants?

In Employment Law, Restrictive Covenants are typically obligations which prohibit employees from competing with their ex-employer. Examples of this could be:

• A non-compete clause such as not working for the ex-employer’s main rivals for a period of 12 months after leaving the company.
• A non-solicitation or non-dealing clause such as not trying to poach or have any dealings with the ex-employer’s clients for a period of 12 months after leaving the company.

The Restrictive Covenants are viewed by the Court as valid subject to them being ‘no more than is reasonably necessary to protect the employer’s legitimate business interests.’

In basic terms, if the restrictions are reasonable and sufficient to protect the business, they will be valid but if they are deemed unreasonable, in any form, then the Court will deem them invalid and strike out the restriction out as it never existed.

Government Proposal

The Government have announced they intend to reduce the maximum period of 12 months to 3 months for non-compete Restrictive Covenants.   However, they have made it clear that employers will still be able to restrict competition during paid garden leave or notice periods.

For example: You wish to restrict ex-employees working as an engineer in a 5-mile radius of your company headquarters then this restriction can only be in place for a maximum of 3 months under the Government’s new proposal.  

It is important that consideration to given to how Courts will now interpret Restrictive Covenants as it is likely they will take a stricter view on them. Restrictive Covenants are extremely fact sensitive so careful drafting is imperative.

Ex-employees can still be restricted from dealing with your clients (non-solicitation and non-dealing) for the maximum period of 12 months as the Government has no current plans to restrict these and the same can be said for Confidentiality clauses which may bring a sigh of relief to employers as the main clauses to protect from client poaching are untouched.

It is significant to note that the Government have not given a date or even a timeframe for when these changes shall be made but having announced the intention, it is likely to flavour the Courts interpretation of these restrictions.

In the meantime, should you have any issues or queries regarding non-compete clauses or any other employment issues then please do not hesitate to contact us and will be more than happy to assist you.