Skip to main content

Insight article

June 30, 2020

Non-Compete. Get it right to protect against competition

Companies looking to protect their business by relying on non-compete clauses for key employees should check that any post-termination restrictions are reasonable.

When an employee leaves, and there is a threat of commercially sensitive information about operations and customers being passed to a competitor, the non-compete/restrictive covenants in the employment contract are effectively the safety net in protecting know-how and business relationships.

A recent case heard in the High Court has shown that while the court will enforce non-compete clauses, restrictions must go no further than protecting legitimate business interests. It also highlighted the importance of being clear about any so-called ‘garden leave’ where employees work out their notice period at home.

In Square Global Limited v. Leonard, a broker was required to give six months’ written notice. The employment contract also contained a restriction on him working for a competitor for six months after the end of his employment. When he immediately handed in his notice and left to work for a competitor, his former employer relied on the employment contract. In response, the broker claimed he had been constructively dismissed, arguing that this released him from his obligation to give notice and the non-compete clause.

The High Court upheld the employer’s argument. It said that the six-month non-compete clause was reasonable and went no further than necessary to protect the employer’s legitimate business interests. It was, therefore, enforceable. The court also decided that the broker was required to serve out his six-month notice period on top of the six-month restriction, keeping him out of the market for a total of 12 months.

This compares with a case in 2014, Ashcourt Rowan Financial Planning Limited v Hall, where the High Court held that a restrictive covenant designed to prevent a former employee from working for a competitor for six months was unenforceable because the covenant was too widely drawn, going beyond protecting the legitimate business interests of the employer to be in restraint of trade. The High Court found that the covenant was not confined to what was reasonably necessary and covered indirect involvement without any obvious justification.

The law has always regarded a covenant ‘in restraint of trade’ as being void because an individual should be free to follow his trade and use his skills without undue interference. Such clauses are, therefore, only enforceable if they are strictly limited to what is necessary to protect a business.

Employment partner Karen Cole said:

“This is a reminder that employers need to ensure that non-compete clauses and other restrictive covenants are reasonable and focus on activities which would involve the employee directly competing with their old employer. Trying to do a catch-all is impossible to enforce.

Garden leave and how or when that might be offset should also be tackled. What’s important is that any restrictions are carefully drafted and checked at the outset.”

Contact employment partner Karen Cole today if you have an employment law query.

Note: This is not legal advice; it provides information of general interest about current legal issues.

Stay in touch

Subscribe to our newsletter

Stay in touch

By completing your details and submitting this form you confirm you are happy for us to send you marketing communications and that you agree to our Website Privacy Policy and Legal Notice and to us using Mailchimp to process your data.


Sending

News/Insight

  • New sexual harassment rules may signal changes to office parties or a decline altogether
    Tomorrow is expected to be one of the busiest nights for office Christmas parties this year. While these celebrations are a staple of the festive season, offering a chance for colleagues to unwind and bond, they also bring unique challenges for emplo


    Read more
  • Employers need to support couples during relationship breakups
    Family Christmases are often followed by the news of unhappy couples calling it quits in January, leading to so-called "Divorce Day", as family lawyers receive numerous enquiries when they reopen after the Christmas break.


    Read more
  • What are trustee responsibilities? A guide to key duties and best practices
    Trustees' responsibilities encompass a wide range of duties when overseeing a trust estate under their care.


    Read more
  • What is the Employment Rights Bill 2024?
    The Employment Rights Bill 2024 marks a pivotal moment in UK employment law, promising the most significant reforms in over three decades


    Read more
  • Autumn Budget Statement 2024
    Key implications for employment law, property law, and estate planning


    Read more

What they say...

  • Howard, December 2024
    “Outstanding service. The process from start to finish was run so smoothly. Very professional and everyone involved was a pleasure to deal with and helped with easy to understand guidance, especially during this difficult time of losing a close

  • Ms McVeigh, December 2024
    Advice on redundancy, exit negotiations and settlement “I would like to express my gratitude to RIAA Barker Gillette (UK) LLP and specifically, Patrick Simpson for handling my case with professionalism whilst being prompt and personable. The pr

  • Rob Henderson, December 2024
    “Thoroughly professional. Way to deal with and access.” Contract review

  • Ms Lind, December 2024
    “I would highly recommend Patrick! Patrick advised me when I was being made redundant, making sure I was aware of my rights and advocated for me in all communications with my company. He came across very professional, trustworthy and knowledgea

  • Pal Peshikaj, December 2024
    “Compare Ben Marks and Martin Alfreds with MJ and Pippen – the conveyancers dream team. Both Ben and Martin were amazing in assisting us with the completion of our first purchase. Martin was always accessible, understanding and prompt whe

Read more
Send this to a friend