The Ultimate Guide to Non-Compete Clause Enforceability in UK Labour Law

What is a Non-Compete Clause?

A non-compete clause, also known as a restrictive covenant, is a contractual provision that restricts an employee’s ability to engage in certain activities after they leave their current employment. These activities typically include:

• Working for a competitor.
• Soliciting clients or employees from their former employer.
• Starting a competing business.

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Enforceability of Non-Compete Clauses in the UK

Unlike some jurisdictions, the UK does not have specific legislation governing non-compete clauses. Instead, their enforceability is determined by common law principles of restraint of trade.

Courts will only enforce a non-compete clause if it is deemed:

Reasonableness

The clause must be reasonably necessary to protect the legitimate business interests of the employer. These interests typically include:

• Trade secrets and confidential information
• Customer relationships and goodwill
• Stable workforce and business continuity

Proportionality

The restrictions imposed on the employee must be proportionate to the legitimate interests being protected. This means that the clause should be no wider in scope, duration, and geographical area than is reasonably necessary.

Public Interest

The clause must not be contrary to public policy. This means it should not unduly restrict an individual’s ability to earn a living or stifle competition in the marketplace.

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Factors Affecting Enforceability

Several factors influence the enforceability of a non-compete clause. Courts consider these when determining whether a particular clause is reasonable and proportionate.

Employee’s Seniority and Role

Clauses are more likely to be enforced for senior employees or those with access to highly confidential information, as they pose a greater risk to the employer’s business interests.

Duration of the Restriction

Shorter durations are generally considered more reasonable. Clauses exceeding 12 months face greater scrutiny and may be deemed unenforceable if deemed excessive.

Geographical Scope

Clauses limited to a specific geographical area where the employer operates are more likely to be upheld than those imposing global restrictions.

Consideration

For a non-compete clause to be legally binding, the employee must have received adequate consideration (something of value) in exchange for agreeing to the restriction. This is often in the form of employment itself.

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Consequences of Breach

If an employee breaches a valid and enforceable non-compete clause, the employer can take legal action to enforce the clause and seek remedies, including:

• Injunction: A court order prohibiting the employee from continuing the breaching activity.
• Damages: Financial compensation for any losses suffered by the employer due to the breach.

This video from Venn Law Group provides valuable insights into the enforcement of non-compete agreements, outlining the steps employers can take to protect their business interests in case of a breach.

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Tips for Employers and Employees

Employers:

• Clearly define legitimate business interests that require protection.
• Draft clauses that are narrowly tailored to those interests.
• Seek legal advice to ensure the clause is enforceable.
• Regularly review and update clauses to reflect changing business needs.

Employees:

• Carefully review any contract before signing, paying close attention to restrictive covenants.
• Seek legal advice if unsure about the implications of a non-compete clause.
• Negotiate the terms of the clause, seeking to narrow its scope or duration if possible.
• Understand the potential consequences of a breach.

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