Non-compete clauses are typically included in employment contracts to safeguard a company’s trade secrets, confidential information, customer relationships and other proprietary knowledge. They are a common type of ‘restrictive covenant’ or ‘post-termination restriction’, routinely found in senior employees’ contracts.
A non-compete clause can essentially prevent the potential harm that could arise from employees taking sensitive knowledge, strategies and tactics to competitors or their own competing ventures.
Non-compete clauses tend to benefit the company more than an individual working for them. The advantages they can offer for companies include protection of business relationships and protection of intellectual property (such as their investments in research, development and innovation).
Disadvantages do come with such clauses; specifically, the restrictions it imposes on employees should they wish to leave and explore new opportunities. This could make employees feel trapped in their current positions and hesitant to consider alternative prospects due to the fear of the consequences and constraints they are faced with. It could also lead to them taking such offence with them that they take the view they don’t care whether they break them or not.
There are alternative options for employers to think about before implementing restrictive non-compete clauses. Companies can draft non-compete clauses with limited scope and duration to minimise their impact on employees, such as restricting the clause to specific job functions, geographical areas and limited time periods.
Next, garden leave can be a useful alternative to non-compete clauses. This allows an employee to receive paid leave for the duration of the non-compete period, providing them with financial security and more clarity on their ability to join a future company or start their new venture after its export.
Currently, the government is consulting on restricting their use. The government has so far ruled out the proposal for mandatory compensation in respect of non-compete clauses, however, they are planning to introduce a statutory limit of three months on non-compete clauses in employment and worker contracts. Some non-compete clauses have been known to last for 24 months.
Hannah is a Paralegal who works in Attwells’ Employment Law Team. Should you have any queries in relation to any of the issues discussed in this article or indeed any other employment law issues, please do not hesitate to contact Hannah at 01206 239757 or Hannah.firstname.lastname@example.org.