Non-Compete Clause in Employment Contracts | LegalVision UK (2023)

As a business entering into employment contracts, you should be aware of the options available to prevent competitors from taking your employees. One common post-termination restrictive covenant in contracts of employment is a non-compete clause, which prevents an employee from moving to a competing business for a defined period of time after their employment is over. Using a non-compete clause can be useful for protecting your business. Still, if you plan on including one in an employment contract, you must understand the law surrounding such clauses. This article will explain what a non-compete clause is, and it will touch on some key points to keep in mind about different types of non-compete restrictions.

What is a Non-Compete Clause?

A non-compete clause (sometimes also referred to as a non-competition restrictive covenant in an employment contract) is a type of contractual clause that stops an individual from entering into an employment agreement with a competing business once the employment term is over. Often, non-compete agreements will also prevent an employee from revealing business secrets during the job, and if they enter into a new job.

Non-compete restrictions will typically have a length of time in which the employee cannot work for a competitor if they leave your company (and this is usually 12 months). Some restrictive covenants may also include:

• geographical restrictions; and
• preventing an employee from working in a specified area, usually a specified radius around your business.

Restrictive covenants are usually imposed on employees, but it may sometimes be suitable to impose similar restrictions on other types of workers, such as consultants.

Advantages of Using a Non-Compete Clause

As an employer, using a non-compete clause can have a number of clear advantages to your business. It can help you retain key employees and protect trade secrets and confidential information while stopping talent from going to a competing business. Non-compete restrictions can also incentivise employees to stay in their position in the long term.

However, an employee has no obligation to enter into a non-compete agreement, and they have complete discretion in negotiating the terms of a non-compete clause. For example, they may wish to reduce the non-compete period you originally stipulated. That said, you are free to withdraw an offer of employment if the employee does not want to enter into non-compete restrictions, and you believe that a non-compete post-termination restriction is essential to your business.

What Happens if an Employee Breaches a Non-Compete Clause?

A non-compete clause is a legally enforceable term of an employment contract if it is agreed upon by both parties. As a result, you can take your case to court in an attempt to enforce it or seek damages from the breaching party. However, a court will only enforce a non-compete clause if the terms are reasonable. For example, if the non-compete period is excessively long, or if there is no legitimate business interest in having non-compete restrictions, a court may be reluctant to give you damages.

Following a breach, you should consider:

• writing to the employee to let them know that they are in breach of the non-compete post-termination restriction, and ask them to refrain from continuing to breach the provision. If appropriate, you can also write to the employee’s new employer to make them aware of the non-compete terms; and
• if they continue to breach the restrictions, you may wish to seek legal advice on how to enforce the terms in court.

To have a successful case in enforcing a non-compete clause, you will also need evidence that the actions of the breaching party are hurting your business in some way. This is most likely to be the case if the court accepts that the employee has moved to a competing business and is harming your profits, which could be shown by demonstrating that you have similar clients or work in the same industry.

Changes in the Law

Finally, it is worth keeping in mind that the UK government is considering relaxing employment restrictions in light of the COVID-19 pandemic. As a result, a review is being conducted with proposals for change, which could include:

• mandatory compensation to the employee who is subject to the non-compete clause; or
• an outright ban on non-compete clauses.

In any case, if you believe that you may include non-compete clauses in your contracts in the near future, it is a good idea to stay up to date with legal developments so that you are aware of your obligations to employees.

Key Takeaways

As a business entering into employment contracts, you might want to consider using a non-compete clause to prevent key employees from moving to competing businesses.

A non-compete clause restricts an individual from working for a competitor for a certain length of time after leaving your business. If an employee is in breach of a non-compete clause, then you may have grounds for taking them to court. A court could oblige them to stop breaching the term, and you may also be able to have your legal costs covered.

If you are considering using a non-compete agreement in the near future, it is a good idea to stay up to date with the UK government’s plans for change to avoid being in breach of the law yourself.

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