Non-compete clause enforcement?

[StavTheo]

Hi all,

New here at looking for some advice please.

I work in IT, in a very specific field, I'm a UK territory sales manager.
I resigned in order to join a direct competitor. As usual, my employment contract had a non-compete clause. I heard that my previous employer "might go legal".

Can you please let me know what your thoughts are and if you have any experience with these kind of cases?

In a nutshell, my contract said that I cannot join a competitor in the United Kingdom, for 2 months after leaving the Company.
Clause 6.2 tries to make Clause 6.1 sound reasonable but in essence I have joined a competitor.

I am not going to approach any of my old customers for 2 months...

Here's a copy of my previous contract:

POST TERMINATION OBLIGATIONS OF THE EMPLOYEE

6.1 The Employee shall not within the United Kingdom for a period of two months after the termination of the Employment directly or indirectly and whether solely or jointly without the prior consent in writing of the Company:

• 6.1.1 Be engaged concerned or interested in any capacity whether as Director, Principal, Agent, Partner, Consultant, Employee or otherwise in any other business which is in competition with the business carried on by the Company.
  
  
• 6.1.2 Canvass solicit or approach or cause to be canvassed or solicited or approached for orders in respect of any services provided or any goods dealt in by the Company and/or its subsidiaries in respect of the provision or sale of which the Employee was engaged during the last 2 months of the Employment any person or persons who at the date of termination of the Employment was negotiating with the Company for the supply of services or goods or within 2 months prior to such date is or was a client or customer of the Company or of its subsidiaries or was in the habit of dealing with the Company or its subsidiaries.
  
  
• 6.1.3 Interfere or seek to interfere with the continuance of supplies to the Company and/or its subsidiaries (or the terms relating to such supplies) from any suppliers who have been supplying components, materials or services to the Company and/or its subsidiaries at any time during the last 2 months of the Employment.
  
  
• 6.1.4 Solicit or entice away or endeavour to solicit or entice away from the Company or its subsidiaries any person who is at the date of such termination employed by the Company or its subsidiaries in an executive, technical or sales capacity and with whom the Employee has had direct or indirect contact during the Employment.
  
  
• 6.2 The provisions of clause 6.1 shall not restrain the Employee from engaging in or accepting employment or dealing with any business concern where the Employee's duties or work or dealings relate to services or goods or materials of a kind of nature with which the Employee was not concerned to a material extent during the period of 2 months prior to the termination of the Employment.
  
  
• 6.3 The restrictions upon the Employee contained in this Agreement shall be in addition to and not in substitution for any obligation imposed upon him/her by law in relation to confidential information and so that each of the foregoing restrictions shall constitute separate agreements between the Company and the Employee and shall be in addition to and not in substitution for any obligations imposed upon him/her by the general law.

7 . ENFORCEMENT

7.1 The Employee agrees that having regard to his/her duties hereunder and his/her position in relation to the business of the Company the restrictive covenants herein contained are separate and severable and enforceable and necessary for the protection of the legitimate interests of the Company and that such covenants do not work harshly on him/her.

7.2 If any of the restrictive covenants contained herein shall be adjudged to be void or ineffective for whatever reason but would be adjudged to be valid and effective if part of the wording thereof were deleted or the periods thereof reduced or the area thereof reduced in scope, they shall apply with such modifications as may be necessary to make them valid and effective.


Many thanks

 

[Mark T Jones]

Were there any circumstances to your leaving, other than a better offer? This may have an impact

I've seen these agreements enforced and I've seen them fall over. However, given the current state of the legal system not much will happen in 2 months

 

[Newchodge]

Reading it as a whole, I think it is enforceable. It is very limited in time and limited to the goods and services previously involved with. Has your ex employer approached your current employer yet?

 

[StavTheo]

Were there any circumstances to your leaving, other than a better offer? This may have an impact

I've seen these agreements enforced and I've seen them fall over. However, given the current state of the legal system not much will happen in 2 months

No, just a better offer.

2 months is a reasonable term but UK wide might seem unreasonable.

So, are you saying that the claimant (previous employer) won't have a case if the courts take more than two months? No sure I understand your last comment. Thanks!

 

[StavTheo]

Reading it as a whole, I think it is enforceable. It is very limited in time and limited to the goods and services previously involved with. Has your ex employer approached your current employer yet?

Thank you - not that I know of.

 

[Porky]

Some here may disagree but frankly IMO they are not worth the paper they are printed on

You cant prevent someone earning a living that's the reality. To try and enforce this is VERY difficult and to prove any financial loss also very tricky to do and at significant legal cost hence they are unlikely to try and enforce this especially the not working at a competitor part unless you start taking clients off them and they can prove the financial loss as a result.

If you start attacking their clients then they could try and pursue you if its economically viable to do so for the lost revenue as a result of your actions.

My "opinion" for what its worth is that they wont bother to take action that you went to a competitor, but you should do the right thing and not go after their clients. Also, you know its a small world out there and if you remain professional, don't try and damage their business, there may be a time you want to return to them and you will be respected for that.

Good luck

 

[IanSuth]

Reading it as a whole, I think it is enforceable. It is very limited in time and limited to the goods and services previously involved with. Has your ex employer approached your current employer yet?

I would concur (27 years in IT recruitment and went on several legal seminars re restrictive covenants)

 

[IanSuth]

As it is only 2mths, if you are on a 1mths notice period it is just the same as being put on 3mths garden leave which is what most companies do.

Either suck it up and take 2 mths leave, or negotiate with new employer to do non sales generation related work for a couple of months and let current co know that is your plan or thirdly call their bluff and risk the court

Be aware it costs >£10k min to get an injunction stopping you working so your current co has got to be sure that stopping you working for 2 mths is worth £10k to them - only you know the answer to that

 

[StavTheo]

As it is only 2mths, if you are on a 1mths notice period it is just the same as being put on 3mths garden leave which is what most companies do.

Either suck it up and take 2 mths leave, or negotiate with new employer to do non sales generation related work for a couple of months and let current co know that is your plan or thirdly call their bluff and risk the court

Be aware it costs >£10k min to get an injunction stopping you working so your current co has got to be sure that stopping you working for 2 mths is worth £10k to them - only you know the answer to that

My notice period was one month, they put me on gardening leave as soon as I resigned and told them where I'm going. I joined the new company on day 1 after my notice period was over - can't afford two months without work anyway.

Can you please clarify what "risk the court" really means? I have no plans of engaging with the same customers, as far as I understand the previous company has to prove that I caused financial damage in order to have a case against me... Does it really matter that I joined a competitor, when I have no intention of poaching customers and diverting business away from them?

 

[IanSuth]

My notice period was one month, they put me on gardening leave as soon as I resigned and told them where I'm going. I joined the new company on day 1 after my notice period was over - can't afford two months without work anyway.

Can you please clarify what "risk the court" really means? I have no plans of engaging with the same customers, as far as I understand the previous company has to prove that I caused financial damage in order to have a case against me... Does it really matter that I joined a competitor, when I have no intention of poaching customers and diverting business away from them?

i meant you said they had intimated they might go legal - in this case legal can only really mean getting a high court injunction stopping you working for that company for x period of time.

As @Newchodge said it does look enforceable as limited in time and scope BUT it would cost them over £10k+ so do you think they will spend that for the sake of stopping you working for a couple of months

 

[UKSBD]

As @Newchodge said it does look enforceable as limited in time and scope BUT it would cost them over £10k+ so do you think they will spend that for the sake of stopping you working for a couple of months

If they do enforce it, it costs them £10k and they win, can they claim these costs of the OP?

 

[NickGrogan]

Does it really matter that I joined a competitor, when I have no intention of poaching customers and diverting business away from them

You've gone to a direct competitor, doing the same role and you won't be approaching any of the same customers?

What was the new employer's reason for hiring you?

Might be hard to enforce, but less hard to make trouble for you and your new employer. Really depends on the value of the customers they expect to lose and the impact of making you wait 2 months.

 

[Newchodge]

If they do enforce it, it costs them £10k and they win, can they claim these costs of the OP?

yes

 

[Michael Loveridge]

Some here may disagree but frankly IMO they are not worth the paper they are printed on

Well I'm one of the people here who very strongly disagree. This is very dangerous advice, and following it could prove extremely expensive.

The courts will uphold restrictive covenants if they are reasonable, and a period of two months would almost always be considered reasonable - three, or even six months is much more common, and such periods have often been considered reasonable. Likewise, although a UK wide covenant may be struck down as too wide, clause 7.3 allows the court to modify the covenant, so that it might then still apply.

Yes, it might cost the employer £10k to obtain an injunction, but if their application is successful they can, and will claim those costs against you, and bear in mind that the costs might well exceed that amount. Furthermore, you would have to incur your own legal costs of defending the application, which might be a similar amount.

Of course, even though your ex-employer can take action it doesn't mean that they will. Much will depend on whether or not your taking up the new post will actually affect them and/or whether they resent your departure so that they might just take action to `punish' you.

Consequently, if they aren't likely to suffer, and you aren't on bad terms with them, it might be worth considering asking them for consent to start work with your new company - clause 6.1 envisages that such consent could be given.

If that's not feasible then you have to consider how you would respond if they were to issue a court application. It's all very well barrack room lawyers saying the covenants aren't enforceable and that you can easily defend such applications, but they aren't the ones facing a £20k + legal bill if you lose. Many people faced with such an application, and the prospect of paying large legal costs, will just cave in immediately and agree to observe the covenant rather than take the risk of defending the claim.

So if you do go ahead and break the covenant you are taking a significant risk. If I were you I'd ask your new employer (who is presumably aware of this) to indemnify you in writing against any legal costs that may be incurred in defending such an application if it were to be issued.

 

[Newchodge]

Well I'm one of the people here who very strongly disagree. This is very dangerous advice, and following it could prove extremely expensive.

The courts will uphold restrictive covenants if they are reasonable, and a period of two months would almost always be considered reasonable - three, or even six months is much more common, and such periods have often been considered reasonable. Likewise, although a UK wide covenant may be struck down as too wide, clause 7.3 allows the court to modify the covenant, so that it might then still apply.

Yes, it might cost the employer £10k to obtain an injunction, but if their application is successful they can, and will claim those costs against you, and bear in mind that the costs might well exceed that amount. Furthermore, you would have to incur your own legal costs of defending the application, which might be a similar amount.

Of course, even though your ex-employer can take action it doesn't mean that they will. Much will depend on whether or not your taking up the new post will actually affect them and/or whether they resent your departure so that they might just take action to `punish' you.

Consequently, if they aren't likely to suffer, and you aren't on bad terms with them, it might be worth considering asking them for consent to start work with your new company - clause 6.1 envisages that such consent could be given.

If that's not feasible then you have to consider how you would respond if they were to issue a court application. It's all very well barrack room lawyers saying the covenants aren't enforceable and that you can easily defend such applications, but they aren't the ones facing a £20k + legal bill if you lose. Many people faced with such an application, and the prospect of paying large legal costs, will just cave in immediately and agree to observe the covenant rather than take the risk of defending the claim.

So if you do go ahead and break the covenant you are taking a significant risk. If I were you I'd ask your new employer (who is presumably aware of this) to indemnify you in writing against any legal costs that may be incurred in defending such an application if it were to be issued.

I realise it is not relevant for this case, but are you aware of any cases where clause 7.2 has been applied? Is it not a problem that the contract becomes uncertain?

 

[Michael Loveridge]

I realise it is not relevant for this case, but are you aware of any cases where clause 7.2 has been applied? Is it not a problem that the contract becomes uncertain?

Yes, there have been many such cases. One of the leading ones, in that it was a fairly recent Supreme Court decision was Tillman v Egon Zehnder Ltd - https://www.supremecourt.uk/cases/uksc-2017-0182.html

 

[Newchodge]

Yes, there have been many such cases. One of the leading ones, in that it was a fairly recent Supreme Court decision was Tillman v Egon Zehnder Ltd - https://www.supremecourt.uk/cases/uksc-2017-0182.html

Yes, I read that, but as I understand it it severs the offending clause, it doesn't replace it with something else?

 

[Porky]

Hey, I'm not adding my two pence worth to this thread with the intention of ruffling feathers of those in the legal profession that know their stuff. I cant defend the fact that there is a legal contract signed and as a result they have the right to try and claim damages blah blah blah

I am merely commenting that IMO on the coal face, in this situation i just don't think it worth chucking cash at this over a broken two month rule. I just cant see it happening. If i was on the BOD of his ex employers business i would not be signing off on that end of. I would only be bothered if i found he was contacting my clients and i was losing business as a result. Then i would probably hit him with a damages claims and add the two month on the back of it as a bonus.

As it stands as long as he keeps his nose clean at new co, doesn't attack their clients i don't think anything further will come of it, other than at best a letter reminding him of his obligations of non solicitation. That's how i see it anyhow and i stand by that. I have issued a lot of similar contract wordings over the years especially to BDMs and have also worked with three or four different businesses all doing the same and NEVER at anytime in history have i ever gone legal for damages as a result of a the contract being broken. As i say what is the financial loss here if he doesn't attack the ex-employers clients?

Perhaps the OP can keep us updated of how events unfold here.

 

[cjd]

The OP has taken what an old American boss of mine called a commercial risk. Ie a gamble which he joyfully accepted almost every time. He regarded a signed contract as the start of a negotiation, not the end of it and he usually won or worked out a compromise better than the original terms. Litigation is chancy, costly and time consuming so rational people think twice before bothering with it - depending on the actual consequences of the breach and the likely outcome of course.

Anyway, the OP deliberately breeched a contract and now hopes that there will be no consequences. He may well win, it generally depends on the personality of the business owner - some will pursue it on a point of principal some will shrug it off as not worth the candle. The OP's real mistake is not knowing the possible consequences before he took the gamble.