Is there a future for non-compete clauses?

Hot on the heels of the US Federal Trade Commission’s (“FTC”) proposal for a complete ban on non-competes, the UK Government has announced its intention to limit post termination non-compete clauses to just three months. This comes as part of a wider announcement of proposals which the government says have been made to help boost the economy, in this case by promoting competition and productivity in the workplace.

When will this happen?

It’s unclear at the moment when this restriction will come into force. Any reform to the rules on non-complete clauses will require primary legislation, which the government’s press release states it will be done “when parliamentary time allows”, so when that will be is anyone’s guess.

What’s the impact of this change?

At first glance, this will cause alarm for many employers, particularly those in recruitment or sales where the exposure of former employees joining a competitor or setting up in competition is a real concern. However, there’s long been criticism in the courts for non-compete clauses with judges seeing them as unreasonable restraint of trade, particularly where there are non-dealing and non-solicitation clauses which can arguably offer sufficient protections to a business’ legitimate interests, without there being a total ban on competition.

What we do know is that the government have confirmed that limiting non-compete clauses will not affect restrictions during garden leave or paid notice periods (the proposal relates to post-termination only), or change the position on confidentiality clauses or non-solicitation clauses (which prevent employees from contacting previous customers, clients or suppliers in an attempt to win their business).

However, amongst other things, the government’s press release was silent on:

  • non-dealing clauses (which sit somewhere between non-solicitation and non-compete clauses and are generally, therefore, easier to enforce than non-compete clauses); and
  • whether the proposals will have retrospective effect (it’s likely that they will so an employee who spends 3 months of garden leave would likely not be restricted after the end of their employment, regardless of whether the restriction is longer).

What should employers do now?

Until the proposal becomes law, there’s no legal requirement to amend any existing restrictions, however employers that currently have restrictions beyond 3 months, or who are considering introducing them, should think carefully about whether these are likely to be enforceable now, and in the future.

Restrictive covenants are a complicated area and for the best chance of them being enforceable, they should be regularly reviewed. This is particularly important because the courts will only consider whether a restriction is enforceable at the time it’s entered into, not at the time the employer seeks to enforce them (by which time the employee/former employee may have a far more senior position, making the restrictions even more important).

For advice and assistance with drafting enforceable restrictive covenants, contact the Employment Team at Sherrards.

Sherrards Recruitment team help client with breach of restrictive covenant battle

The team issued High Court proceedings with an injunction hearing which was successful.

Barney Laurence and his team were able to secure default judgment avoiding significant expenditure for ongoing legal proceedings for our client which they would have stood little to no prospects of recovering from the former employee.

Sherrards help London based recruitment agency recover unpaid fees

The matter proceeded to a final hearing and after some 18 months of litigation a Judgment was given in our client’s favour, resulting in them recovering not only the recruitment fee but also statutory compensation and contractual interest.

The team also resolved an important ‘passing off’ issue for the same client following a competitor setting up a recruitment company with a very similar name.  The competitor was forced to change its name, website and materials within a week of our involvement. 

The client was referred to the Recruitment team by their Recruitment Directors Lunch Club (RDLC) networking group. The successful outcome of this matter has been widely publicised via the RDLC network, resulting in further instructions and recognition from the group.

To find out about more successful cases, please contact Barney Laurence

Sarah Newman

Sarah supports niche specialisms within the firm including across the recruitment and franchising sectors, working alongside Barney Laurence, Partner in the Litigation department. Sarah also works closely with Paul Marmor, Head of Dispute Resolution, Commercial Litigation and International.

She is enthusiastic about her work and has supported the team on an impressive range of disputes ranging from contractual matters to High Court fraud disputes, involving international elements.

Sarah’s motivation is to build long-lasting relationships with clients and ensure they receive pragmatic and thoughtful advice.

We trust that held your attention.

Barney Laurence

He is an expert in his field, evidenced by his continued recognition as a ‘Next Generation Partner’ in the legal directory The Legal 500.

He also heads up the Firm’s Recruitment team and is well-known in the Recruitment sector for being “someone really good to have on your side”.

He is respected for breaking down legal jargon into simple terms and for making himself accessible to clients at all hours. They appreciate him for his honesty, humour and down to earth style.

Clients say he is a “standout Partner with a winning track record”, he “takes the stress off me, allowing me to focus on the rest of my business”.

That’s Barney for you.

Mark Fellows

Mark’s motivation is supporting his clients and he is known for making himself accessible to them at all hours, though he prefers to meet face to face where possible (over a cup of tea, naturally) as he finds those meetings most productive and the best way to understand his clients’ concerns and objectives.

Mark runs an exclusive HR Forum, providing his clients’ HR teams with the opportunity to hear first-hand about developments in employment law and how that will impact their work, and also provides “first-class” in-house training for clients.

When pressed for his favourite client testimonial, he chose “Mark epitomises professionalism. He always suggests sensible, pragmatic and realistic courses of action, managing client expectation superbly throughout.”

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Mark is also cited as a Leading Individual in The Legal 500’s guide to outstanding lawyers nationwide, click here to see Mark’s reviews on The Legal 500, or take a look at Three Best Rated

We knew that and now you do too.

Mark Fellows is the best rated employment lawyer