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Non-compete clause in contract of employment


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Hello all,

 

Its been a long time since I have posted on CAG, but it was the first place I thought of in relation to a nagging issue which has arisen and I thought perhaps someone might be able to definitively answer an employment related question here.

 

I have been employed full time by a private company for the last six months.

 

A month or so ago each employee was asked to sign an updated version of our contract of employment. We were told by our manager that there were a few minor changes. I signed the contract, and despite what I am about to post below, do not regret doing so, because prior to joining this company I had been out of work for a while, and I am happy where I work.

 

That said, there are a number of other private companies which do similar/the same type of work in the area, and the company I work for notoriously pays lower salaries than the industry average. The vast majority of colleagues who leave the business go to work for another similar company for more money, and turnover of staff is unusually high, I would say, because of this pay gap.

 

A colleague mentioned to me recently that the new contracts we all signed contained an updated 'non-compete' clause in our contracts, which reads as follows:

 

Restrictive Covenants

 

During your employment you will obtain personal knowledge of a variety of different contacts (customers, potential customers, suppliers, potential suppliers and employees etc) of the Company and associated companies.

 

You therefore agree that, to protect the interests of the Company and associated companies you will not, either directly or indirectly, without prior written consnt of the Company and whether on your own account or in association with any other person, firm, company organisation do any of the following, at any time during the 12 months following the termination date of your employment:

 

Non-Compete

 

Directly or indirectly compete with the business of the company and its associated companies during the period of employment following termination of employment and notwithstanding the cause or reason for termination;

 

Directly or indirectly, whether on your own behalf or in conjunction with any person, company, business entity or other organisation whatsoever, not to solicit, assist in soliciting, seek, accept, or facilitate the acceptance of, or deal with the custom or business of any customer or client of the Company, or any prospective customer or client of the Company;

 

This non-compete clause shall extend to the recognised Areas in which the Company operates at the date of termination of your employment;

 

The term "not compete" as used herein shall mean that you, the employee, shall not own, manage, operate, consult or be employed in a business substantially similar to, or competitive with, the present business of the Company or such other business activity in which the Company may substantially engage during the term of employment.

 

[There are also Non-Solicitation and Non-Poaching clauses]

 

The Company I work for provides services to a government department. In my role I come into contact with customers and their details, but I do not have any detailed specialised knowledge other than that which I brought to the role through my background and skills. I do not build or maintain business relationships or operate at a senior level.

 

Is my employer just fed up with people leaving to go to work for similar businesses?

 

What would happen if, in the future, I resigned and joined a similar business within the same Area within a 12 month period? Would my current employer have any legal recourse?

 

How can it be reasonable to prevent a person from going to work for another company? I would not share confidential or sensitive information or undermine the business interests of my current employer, but I am very good at my job and could probably earn 30-40% more elsewhere.

 

Just to be clear I have no intention of leaving my current employer at this moment in time, but might well do in a year or so. Thanks.

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Seems like a pretty comprehensive clause....

 

However, there are some fairly obvious restriction of trade arguments here, which an employer would be unlikely to be able to uphold. Restrictive covenants are only likely to be enforceable where there are genuine and legitimate interests to protect - for example where an employee is privy to specialist technical information, details of a product launch etc. Your seniority within the organisation would also be a factor, and whether you had access to the organisations future business strategy and pricing structure for example. Above all, the restriction should only last for so long as is necessary to protect the interests in question and I would suggest that 12 months for a relatively junior member of staff would be seen as overburdening.

 

In order to enforce the restriction, the company would have to apply for an injunction to stop you taking up the position with the new employer, so if you do consider moving, it would probably be wise to discuss the restriction with the new company before accepting an offer, and to take legal advice on the enforceability of the restriction.

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Hi Sidewinder, thanks for your reply, really appreciate it.

 

To give a little more detail/background on the situation.

 

My colleague who told me about the non-compete clause said that a few employees at the same level as me have expressed concern about it and been told "don't worry, it's just for managers" - which begs the question why is it in our contracts?

 

Someone who does a slightly different role to me, but on the same level, has this week been offered a job with another company which competes with my employer, but for a different area of this other company's business entirely. She has been told by my employer that they want her to leave as soon as possible, and not serve her notice period, because of "a conflict of interests between the contracts" - but they haven't even put her on garden leave. So perhaps I am worried about nothing.

 

Other than customer information I have access to company training materials and stuff of that nature, which is the company's intellectual property, but nothing technical, and have no visibility of the company's future strategy, other than that communicated to all employees in conferences and so on.

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My view is that such catch-all restraint of trade clauses are unenforceable, a recent appeal court case that escapes my mind at the moment established this - and I have posted on this matter on this site elsewhere.

 

Wiki has a good explanation of restraint of trade clauses.

 

I doubt these clauses could be enforced even for managers because of the catch-all way they have implemented it.

I am not a lawyer, so all my advice is provided on the basis that you will check them with a trained legal professional with legal insurance.:(

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You seem to have signed the new contract without actually reading it..... I do wish people would ask *before* they signed things, if it is watertight there is damn all you can do about it now! Your company are niot going to recind it because you smile sweetly!

Never assume anyone on the internet is who they say they are. Only rely on advice from insured professionals you have paid for!

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I agree with sidewinder. Clauses of this nature are not enforced if they constitute a "restraint of trade". This means they are only enforceable if they are reasonable in length, scope and geographic area. Unless you have some sort of confidential information which could be used to the detriment of your former employer, 12 months is likely to be too long for a junior employee and is likely to be struck down by the courts if a case was brought. The kind of cases in which the courts have upheld 12 months non-compete have been upheld generally involve senior managers and some sort of significant confidential information - an example being http://www.bailii.org/ew/cases/EWCA/Civ/2007/118.html.

 

The non-solicitation and non-poaching clauses have a much better chance of being upheld than the non-compete.

 

If your employer has gone ahead and put this clause in everyone's contracts, it is obviously concerned about this kind of thing. If this is a big issue for management they could try and sue you even though they would not have a great chance of being successful at trial if you deal with the litigation properly.

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You seem to have signed the new contract without actually reading it..... I do wish people would ask *before* they signed things, if it is watertight there is damn all you can do about it now! Your company are niot going to recind it because you smile sweetly!

 

With the best will in the world, normally I'd agree with you on this, however, I'd honestly have signed it in either case. I was out of work for a while before I got my current job, I enjoy working there, and would have to be seriously distressed about something to kick up a massive fuss. I'm not expecting to get the clause rescinded or anything like that. In short, me posting this one side of signing the contract or the other almost certainly wouldn't have changed whether I agreed to sign it or not. I was/am in my probationary period as well, they could just get rid of me if they didn't want me and I have no rights whatsoever.

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The key question here is whether the word "Areas" is defined anywhere in the contract. Given that it is capitalised, it implies that the word is defined somewhere.

 

If it is, it could be a valid and enforceable covenant. If not, it's not worth the paper it's printed on as its too vague.

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Hi becky,

 

The term 'Areas' is defined in the contract.

 

It refers to the delivery areas which the government divided the country up into, for the service that my employer provides to the government.

 

In each of these areas of the country, of which there are around 25-30, a number of companies bidded for the right to provide the service in question. In my area, three companies won the contracts. These three companies have each subcontracted the delivery to other companies.

 

The geographical size of the area in question would mean that I could not reasonably gain employment in the same industry without relocating as I do not drive, even then, it would be a long commute each day to work with a new employer outside the 'Area' in which my employer operates.

 

Hope that makes sense. The clause, if enforceable, would prevent me from working for about 6 other companies, all of whom offer better salary terms.

 

The other key thing is that as far as I know, the specific job I do is not one which is needed by any other companies who are not in competition with my employer in one way or another.

 

It does seem to be it would be a restraint on trade, from what others have posted above. I very much doubt they would take an injunction out.

 

If I do leave in the future I wonder if I am obliged to tell them where I am moving to, if that would 'solve' the potential problem, if I just refuse to say where I am going, or tell them I am going travelling or something.

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So does that mean you're prevented from working over 1/25th of the uk?

 

Could be enforceable, but only if its in place to protect their legitimate business interests. It's probably unlikely you'd cause them any financial loss, which means you need to assess whether you consider they are likely to want to spend around £10,000 in legal fees on getting a high court injunction!

 

Usually new employers will want a reference from your last employer, so you may not be able to hide it from them unless you have other good referees.

 

Basically, I'd say tread carefully and act as though it IS enforceable - but even if it is, it's so costly to stop you working elsewhere that they may not pursue you over it in any event!

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With the best will in the world, normally I'd agree with you on this, however, I'd honestly have signed it in either case. I was out of work for a while before I got my current job, I enjoy working there, and would have to be seriously distressed about something to kick up a massive fuss. I'm not expecting to get the clause rescinded or anything like that. In short, me posting this one side of signing the contract or the other almost certainly wouldn't have changed whether I agreed to sign it or not. I was/am in my probationary period as well, they could just get rid of me if they didn't want me and I have no rights whatsoever.

I would say there is an element of duress in the signing as well, so very much doubt the clause is enforceable.

I am not a lawyer, so all my advice is provided on the basis that you will check them with a trained legal professional with legal insurance.:(

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So does that mean you're prevented from working over 1/25th of the uk?

 

 

The 'Areas' vary in geographical size, but in simple terms, yes it does mean that, if enforced.

 

Someone else mentioned injunctions above, I didn't realise it would have to be a high court injunction and the costs involved though, I think it is highly, highly unlikely that they would be that desperate to keep me or vindictive to be honest.

 

Thanks for your advice!

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