Protecting your business from former employees - potential developments in the pipeline

A non-compete clause is a type of restrictive covenant commonly found in employment contracts. Their purpose is to protect a business by preventing an employee from either (a) working for a competitor or (b) setting up their own competing business for a period of time following their exit.

Other types of restrictive covenants in employment contracts include:

• Non-solicitation (prevents an employee contacting business connections)
• Non-dealing (prevents an employee from working with previous business connections even if they are approached by the connection first)
• Non-poaching (prevents an employee poaching staff from the business)

Non-compete clauses are extremely useful to businesses of all sizes, as they can prevent a departing employee from directly competing with them for a set period of time.  This is subject to the non-compete clause being well-drafted and not being “too restrictive”.

Developments in the law

In some European countries, such as Germany, Italy and France, the approach towards non-compete clauses is very different. A monetary payment must be made to the employee in order to cover the period of time for which the employer wishes to impose the non-compete clause.

This approach could potentially be making its way to the UK, as a recent government consultation paper proposes the following two options for change here:-

• Compensation being paid to the employee if a non-compete clause is to be relied upon (similar to the approach in Germany, Italy and France); or
• Rendering all non-compete clauses completely unenforceable (as is currently the position in the state of California).

The latter of the propositions is a drastic change from the current position, and will, without doubt, come under considerable scrutiny from various business sectors as the debate continues to develop.

However, the consultation is very much still in its infancy and it is highly unlikely that any comprehensive changes to the law are going to be implemented in the immediate future.

In the meantime, we would highly recommend ensuring that the restrictive covenants within your employment contracts are drafted on a bespoke basis to protect your specific business interests.

What should I be considering when looking at restrictive covenants in employment contracts?

• How long do I need the restriction to last?
• What is likely to be deemed as “too restrictive” and therefore unenforceable?
• What geographical locations do I need my restrictions to cover?
• What type of business interest do I need to protect?

As the enforceability of restrictive covenants heavily relies upon precise drafting, we would strongly recommend that you seek assistance from one of our employment solicitors, who can assist in maximising protection for your business in the event of the loss of an employee. Talk to our team of specialist employment lawyers to find out how we can help.