Non Compete Contracts

[The Soup Dragon]

We have a person who is interested in joining our company. They currently work for a competitor, not a highly paid job in a production / technical capacity on circa 25K pa. They aren't enjoying it anymore and want to leave. Their current contract has a 2 year non-compete clause saying they can't go work for a competitor for 2 years after leaving. My opinion is that this is rubbish and not enforceable and that slavery ended in this country a long time ago (apparently). This non compete however is causing stress to the employee and putting them off joining us. Any words of advice appreciated.

 

[Newchodge]

We have a person who is interested in joining our company. They currently work for a competitor, not a highly paid job in a production / technical capacity on circa 25K pa. They aren't enjoying it anymore and want to leave. Their current contract has a 2 year non-compete clause saying they can't go work for a competitor for 2 years after leaving. My opinion is that this is rubbish and not enforceable and that slavery ended in this country a long time ago (apparently). This non compete however is causing stress to the employee and putting them off joining us. Any words of advice appreciated.

It looks far too broad to be enforceable. It amounts to a restraint of trade rather than legitimate protection of a business. Have you got the exact wording, please?

 

[Mark T Jones]

They could just get sacked to get around it.

Joking aside, it is extremely unlikely that any court would uphold a 2 year non-compete; and they have probably shot themselves in the foot making the entire clause invalid.

However, this person is clearly risk-averse, s I'd seek written legal confirmation from an employment lawyer.

 

[JEREMY HAWKE]

I Fail to see if these so-called contracts have any clout at all
Our biggest competitor was a manger for one of the biggest courier companies in Europe he started up on his own and took the exiting book with him. They are contracts containing the biggest names in industry and commerce in the country and they were unable to enforce the agreed contact
So Bo£££cks to it

 

[HFE Signs]

They've put it in the contract to protect their business - does said employee come with anything that would be seen as IP, customer base or trade secrets? Anything other than experience that may lead to losses to his current employer? Would they have anything to claim losses or damages to their business if the contract is broken?

 

[Newchodge]

I Fail to see if these so-called contracts have any clout at all
Our biggest competitor was a manger for one of the biggest courier companies in Europe he started up on his own and took the exiting book with him. They are contracts containing the biggest names in industry and commerce in the country and they were unable to enforce the agreed contact
So Bo£££cks to it

A properly drafted non compete clause could be enforceable, but usually they are in contracts to frighten the employee rather than a genuine restraint.

 

[The Soup Dragon]

It looks far too broad to be enforceable. It amounts to a restraint of trade rather than legitimate protection of a business. Have you got the exact wording, please?

Sorry Cyndy, I don't have the wording. They have all of their staff on this clause from the office folks right up to the higher management.

 

[Bob Morgan]

I would agree that it's unenforceable. Such clauses have to be 'Reasonable' in terms of duration AND are also limited to territory. As my Law Tutor always said . . . "Never put anything into a contract that cannot be enforced!" Consequently, I do not use them.

 

[Mark T Jones]

I Fail to see if these so-called contracts have any clout at all
Our biggest competitor was a manger for one of the biggest courier companies in Europe he started up on his own and took the exiting book with him. They are contracts containing the biggest names in industry and commerce in the country and they were unable to enforce the agreed contact
So Bo£££cks to it

I've seen them successfully enforced & I've seen them fail.

From memory, one of the big failures was a 12 month lock-out, deemed by the courts to be unreasonable.

 

[The Byre]

No legal beagle was involved in the drafting of that contract - this is obvious because a two-year non-compete clause would be regarded as being unreasonable and therefore unenforceable. Six months is viewed as reasonable and such clauses may insist on one year - but that is for the employer to go right out on a limb and I doubt that any beagle would recommend making the period of enforcement as long as a year. There would have to be a mighty good reason for the period to be that long!

The general rule is - the restriction must be proportionate and necessary so as to protect an employer’s legitimate business. Any restrictive covenant clause that is too wide to achieve this will be struck down.

Two years is definitely out!

The prospective employee should show you the employment contract and you may like to run it past an employment beagle. The clause must contain the following -

• date when the clause comes into effect;
• duration covered (see above)
• geographical area
• compensation (money!) paid for agreeing to that clause.

It should also be titled ‘restrictive covenant’ or ‘post-termination restriction’ so that it is clear to the employee exactly what it is.

If the contract is enforceable and an employee breaches it after they have left their employment, the employer can ask them to stop and warn them that they may seek an injunction. They must then apply to the court to prevent the employee from continuing to be in breach of the non-compete clause.

The former employer must be sure that they have evidence that the actions of the employee could or is causing actual significant damage to their business.

There are moves to disallow non-compete clauses in employment contracts, as they are seen as unfair restrictions of trade - though moves in that direction have been put back as a result of the silly games being played in Westminster.

 

[HFE Signs]

Just because it's in a contract it doesn't always mean it will stand up in court. Sound's like they are using the same terms to all staff which has more bearing at senior management level. Which is why I mentioned the likelihood of any consequential losses.

 

[IanSuth]

To repeat what others have said.

As a recruiter i signed up to a training day run by an employment solicitors on these contracts. I went as it was useful to know the do's and don'ts so I could ascertain if any restrictions applicants had ion contracts might make my life harder.

The general gist of it was that the higher you look in a company the more important to the company the IP in their heads is and so the more likely you are to be able to restrict it's transfer. Also the more specific you make a restriction the more likely it is to be upheld.

So things like "You can not work on projects dealing with clients you are currently working with for us for at least 6 months after you leave" for a senior account manager would likely be enforceable but blanket restrictions are rubbish

They suggested you never write a clause going over 6 months unless for a very senior person and you could easily justify why it had to be that long due to specific identifiable industry timescales and if you did go over 6 months make it a very very narrow specific clause or risk the whole thing being thrown out

Also look at the other side, all the current company can do is try and take out a high court injunction stopping him starting work for you. That would likely cost them a significant proportion of his salary with no chance of recovery so highly unlikely.

 

[Michael Loveridge]

Whilst much of this advice is good, and such a wide clause may well be unenforceable, there's still some caution required. Most legal disputes are resolved long before they get in front of a judge, and this is very often because one side is too scared to continue the fight.

I've been involved in a few disputes over restrictive covenants, and it's very rarely black and white. Even where the restriction seems too wide, such as the one in this case, the contract will usually contain a clause in the following terms (I've just used a standard clause as an example):

If any provision of this contract is found by a court to be invalid, unenforceable or illegal, the remaining provisions shall remain in force. If any invalid, unenforceable or illegal provision would be valid, enforceable or legal if some part of it were deleted, the provision shall apply with whatever modification is necessary to give effect to the commercial intention of the parties.

This allows the court to modify a restriction that's too broad, and although courts are reluctant to do so the employee can't be sure that they won't.

So a lot depends on the attitude of the employer to the guy leaving. Some employers are just vindictive, and will immediately threaten High Court proceedings. They will even, on some occasions, issue them. Defending a High Court injunction is not for the faint-hearted, and the costs are scary - £20k can vanish within a couple of days, and if the employer succeeds the employee can be saddled with a bill for the employer's legal costs as well as his own. And such costs are enforceable - if the employee owns his own home then it's at risk.

The net effect is that it often doesn't matter whether or not the court action has any merit. It never gets before a judge as the employee is intimidated by the fear of legal costs into signing an undertaking (which is legally binding) to comply with either the original covenant or, more usually, a watered down version, in return for an agreement by the employer not to seek costs against him.

So the employee is right to be cautious, and the OP should consider whether he's willing to underwrite the cost of defending any action brought by the current employer. He should get a copy of the employee's contract and have his lawyers analyse it carefully.

 

[Bob Morgan]

Contact Clauses do not need to be ruled upon by a judge to be deemed Ultra Vires - They are either lawful or not!

 

[Newchodge]

Contact Clauses do not need to be ruled upon by a judge to be deemed Ultra Vires - They are either lawful or not!

Who do you think decides whether a contract clause is lawful? Only a judge can do that. Ultra Vires is a completely different and irrelevant concept.

 

[The Byre]

If any provision of this contract is found by a court to be invalid, unenforceable or illegal, the remaining provisions shall remain in force. If any invalid, unenforceable or illegal provision would be valid, enforceable or legal if some part of it were deleted, the provision shall apply with whatever modification is necessary to give effect to the commercial intention of the parties.

This allows the court to modify a restriction that's too broad, and although courts are reluctant to do so the employee can't be sure that they won't.

As no lawyer would have drafted such a contract with a two-year restrictive covenant, so we can conclude that no lawyer would expose themselves to a negligence action that could ensue - so no lawyers involved.

Also, that clause in italics is itself too broad and may make a covenant unenforceable.

" if some part of it were deleted, the provision shall apply with whatever modification is necessary to give effect to the commercial intention of the parties."

Translated into proper English - "If any part of this contract is unenforceable as a result of negligent, incompetent, or poor drafting, we require anyone interpreting this contract to redraft it so that we get the contract we should have written!"

When put into plain language, it does not sound very enforceable to me! Again, not the words of a person with a copy of 'Kelly's Draftsman' on their shelves.

 

[Dan Warfield]

In my experience a guiding principle is that a non-compete clause cannot prevent the party from pursuing their career / earning a living. So if a non-compete for a lawyer said you cannot practice law for two years, it would be a complete non-starter. The practical effect of this is that the non-compete scope can be reasonably constrained to protect the employer but no further. It certainly can't prevent you generically from working for a competitor in a non-competitive capacity, or for ever, or doing work the employer would not have got anyway.

However, more importantly: If you're in business in this country you should be a member of something that provides on-demand legal advice, especially about employment law. I get this through the IoD and also through another service related to my accountant. In the past I have used the same kind of service as part of a trade association membership, and FSB membership also includes this. These services have been incredibly useful to me in the past. You'll be on the phone for half an hour with a specialist lawyer who can answer your question clearly and consistent with current case law and current government guidance.

 

[Bob Morgan]

Who do you think decides whether a contract clause is lawful? Only a judge can do that. Ultra Vires is a completely different and irrelevant.

The OP was suggesting that by using his 'Universal Cop-Out Clause' that he could include almost anything he considered appropriate, with it being corrected by a judge/court. My comment merely stated that erroneous or sophistic wording should NOT be there in the first place! - You do not consult a judge or a court when drafting a Contract of Employment! Quite simply, you do NOT include anything that is 'Above the Law' (Ultra Vires), and you NEVER include anything that is unenforceable.

 

[Newchodge]

The OP was suggesting that by using his 'Universal Cop-Out Clause' that he could include almost anything he considered appropriate, with it being corrected by a judge/court. My comment merely stated that erroneous or sophistic wording should NOT be there in the first place! - You do not consult a judge or a court when drafting a Contract of Employment! Quite simply, you do NOT include anything that is 'Above the Law' (Ultra Vires), and you NEVER include anything that is unenforceable.

Ultra Vires does not mean above the law.

 

[Bob Morgan]

Ultra Vires does not mean above the law.

Do enlighten me! - Have I mistaken it for deviant mutation of C19?

 

[Newchodge]

Do enlighten me! - Have I mistaken it for deviant mutation of C19?

Looks very much like it. It means an organisation is acting outside its powers - so the government proroguing parliament was Ultra Vires because they did not have the legal power to do it in the circumstances that existed. Comes from the Latin vire meaning power, from which we get virility. (I can do ancient Greek lessons as well, if you like).

 

[The Byre]

This is beagle 101 stuff. It would make an interesting subject for a student essay (second semester?) and is easily settled by referring to 'Law in the Making' - the chapter on 'Subordinate and Autonomic Legislation' - subsection The Doctrine of Ultra Vires. In short, ultra vires deals with the exercise of powers as granted by legislation and an act or rule that seeks to step beyond those powers actually granted.

Cyndy 1
Bob 0

We await the rematch!

 

[Bob Morgan]

Stood on the Naughty Step with the Dunce's Cap on . . . But, I still consider that italicised clause to be complete boll***s! (your honour).

 

[Newchodge]

Stood on the Naughty Step with the Dunce's Cap on . . . But, I still consider that italicised clause to be complete boll***s! (your honour).

One of the requirements of a legal contrract is certainty. I cannot see how that italicised clause can meet that test.

 

[The Byre]

If you mean that rubbish about "the provision shall apply with whatever modification is necessary to give effect to the commercial intention of the parties" - it meets nothing other than deserved derision.

 

[dylanmarlais]

We have a person who is interested in joining our company. They currently work for a competitor, not a highly paid job in a production / technical capacity on circa 25K pa. They aren't enjoying it anymore and want to leave. Their current contract has a 2 year non-compete clause saying they can't go work for a competitor for 2 years after leaving. My opinion is that this is rubbish and not enforceable and that slavery ended in this country a long time ago (apparently). This non compete however is causing stress to the employee and putting them off joining us. Any words of advice appreciated.

The employee is earning £25k, so not a senior position. In a nutshell, the law on restrictive covenants is that they are prima facie unenforceable unless the are reasonable in both time and area. It would be necessary to see the precise wording of the clause. But, a 2 year non-compete clause for a junior employee would appear to be wholly unreasonable. I would not be surprised if the area also proves to be unreasonably wide. If you really want the employee, you could offer to support the employee if he or she is challenged. Indeed, as you are aware of the clause, you could also be in the firing line by employing him or her. But, as I say, you are unlikely to hear from the employer and if you do, you can ignore it until you get a formal letter of claim from a solicitor. That would be an unlucky occurrence.