On non-compete agreements

I am being asked about ‘non compete’ clauses in settlement agreement contracts. These are often overreaching but, if so,  are they enforceable? Here are my notes …

I started a thread on Unions Online, which offered me the following links.

  1. Tillman (Respondent) v Egon Zehnder Ltd (Appellant), at bailli, of relevance, and reviews relevant and orthogonal case law. The case is about share ownership which the non-compete prohibited; but the case law is interesting, covering issues of duration and distance.
  2. From the above ruling, Arden LJ, in Anglo Continental Educational Group (GB) Ltd v Capital Homes (Southern) Ltd [2009] EWCA Civ 218, [2009] CP Rep 30, para 13, that “if the agreement is susceptible of an interpretation which will make it enforceable and effective, the court will prefer that interpretation to any interpretation which would result in its being void” It would seem that the court has quite high view as to what is reasonable and unreasonable.
  3. Consultation on measures to reform post-termination non-compete clauses in contracts of employment, probably from BEIS but closed

I found this page, from the Citizen’s Advice site. They ensure the advice is accurate for the differing nations of the UK and I quote, below, from the English page.

As ever, your contract will trump the law, unless the agreement contains an attempt to negate statutory rights, but contracts and settlement agreements often contain non-compete clauses. This is an attempt to stop someone working for a competitor. The CA site states that these must be reasonable.

ooOOOoo


If your employer says you can’t work for a competitor

This advice applies to England.

When you leave a job some employers will say you can’t work for a similar business for a certain amount of time. They could also say you can’t set up a business that competes with theirs.

Your employer might want to limit what work you do next if you could take their customers or if you know confidential information.

Your contract might restrict what work you can do next, but your employer can only do this if it’s needed to protect their business. If there’s nothing in your contract you can take any job you like.

Check if any restrictions apply to you

Look in your contract or terms and conditions of work for wording like ‘You can’t work for a competing business if it’s less than 10 miles away’. It should also say how long the restriction lasts – usually 3 to 6 months.

Restrictions like this could be under a heading that says ‘restrictive covenants’ or ‘post-termination restrictions’.

You’ll usually have to follow restrictions like these if they’re written in your contract. This includes restrictions in any other documents you’ve signed, such as a deal to settle a dispute with your employer.

You can work for whoever you like if there are no restrictions in any documents you’ve agreed to

If you’re not sure about something in your contract, contact your nearest Citizens Advice for help. Bring your contract with you if you come to an appointment.

If you don’t have a written contract

It’s very hard for your employer to claim a spoken agreement includes a restriction on who you can work for. These restrictions have to be precise and specific, so it’s unlikely you’ll need to follow one that isn’t written down.

Look at whether the restriction is reasonable

No matter what’s in your contract, your old employer can’t stop you taking a new job unless it could lose them money. For example if you might:

  • take customers to your new employer when you leave
  • start a competing business in the same local area

If a restriction would stop you getting a job that didn’t affect your old employer, it might not be reasonable. A restriction might also be unreasonable if:

  • lasts more than 6 months – unless longer is normal for your job title or industry
  • applies in places where your old employer doesn’t do business – such as if it mentions a whole region but all their customers are from 1 town
  • applies to jobs that don’t compete with your old employer – for example if it says you can’t take any sales job, even selling different products
  • means you wouldn’t be able to find a job at all

One thought on “On non-compete agreements

  1. In Tilman v Eghon Zehdner, the judge quote ancient common law, “a restraint of trade throughout England would always be bad (“for what does it signify to a tradesman in London what another does at Newcastle?”)”; I wonder what distance the Judge would consider interfering today?

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