To compete or not compete? – Department of BIS calls for evidence on non-compete clauses

Every business has information it wants to protect as it is integral and invaluable to its success. This can include client lists, the way the business is operating, pricing strategies and strategic information on customers. An ex-employee with access to this information may be an attractive asset to a competitor seeking to encroach upon the recruitment market. There are certain terms which are implied into employees’ contracts which may provide a certain level of protection for employers whilst the employee’s employment continues, for example, a restriction not to disclose any confidential information to third parties.

However, an employer may also wish to protect the use of key information after the employment ends, which can be achieved by using restrictive covenants. As the name suggests, these are undertakings which restrict an employee or an ex-employee from doing something. Therefore, a restrictive covenant is a contractual clause restricting the post-employment activities of the employee for a limited period after the employment relationship ends in order to protect the employer’s legitimate business interests. Restrictive covenants (during and after employment) are very common in the contracts of recruitment consultants due to the competitive nature of the sector, the sometimes high turnover of staff and the intrinsic value of client and candidate lists. Especially in light of many prospective employers’ expectation that their new hire is to bring “a following” of candidates and clients with them.

For example, senior employees of a company are likely to have strong relationships with the company’s key customers, intimate knowledge of the company’s most confidential information and, quite possibly, significant sway over the company’s employees, many of whom they may have recruited. Given this, it is prudent for a company to protect itself against the risk of future competitive activity from a departing senior employer. The mechanism for doing so is restrictive covenants.

The Department of Business Innovation and Skills has launched a call for evidence to gather information on the use of non-compete clauses in employment contracts. The fact is, the Courts do not like them and they are prima facie void as restraint of trade. There have been suggestions that non-compete clauses can hinder start-ups from hiring the best and brightest talent.

The government is therefore asking for views from individuals and employers on whether this type of practice is acting as a barrier to innovation and employment. If you have a burning question about this topic or any  other HR or employment law matters please contact me on or 01273 236236. For those of you that are ARC members don’t forget that you can get in touch with me on the ARC helpline.

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