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Is the Non-Compete Restriction Enforceable and Making a Comeback?

on Monday, 09 May 2022.

The majority of recruitment business model themselves as professional service firms, regularly requiring their key staff to enter into restrictive covenants to protect their commercial client and candidate relationships after the ending of the employment.

Such restrictions often include a covenant requiring the departing employee not to compete with the employer as well as non-solicitation and non-dealing restrictions with the clients for a particular period after the employment has ended commonly for periods between three and 12 months from the date of the ending of the employment.

In many cases employers can find it difficult to enforce a non-compete covenant particularly where a departing employee undertakes not to solicit or deal with the clients or candidates for the period of restraint in the contract of employment, provided such a period is reasonable.

Senior staff who leave their employment take up positions with rival competitors will often have to prepare a business plan for their new prospective employer and in order to obtain the position advertised will often embellish their business contacts and revenue generation over a period normally between one and three years in the new employment.

Two Key Cases Involving Non-Compete Clauses

In the recent case of Law By Design v Ali  [2022 EWHC426] a senior solicitor who was subject to a 12 month non-compete in the contract of employment undertook not to solicit the client base but had prepared a business plan for a new employer which was disclosable in the proceedings and indicated that as part of the revenue generation she intended to contact clients within the restricted period and as a result the High Court in this recent decision upheld that the 12 month non-compete was enforceable primarily as the employer was able to demonstrate that it was necessary to police the non-solicitation of clients protect confidentiality and was no wider than reasonably necessary to protect the employers legitimate business interests.

Interestingly the employee also had a minor shareholding in the business which was the subject of a shareholder agreement containing a similar non-compete clause as a shareholder operable for 12 months from the date she ceased to be a shareholder and prevented her from competing with parts of the employers business with which she wasn’t concerned which was held to be too wide.

In another recent case of Harcus Sinclair LLP v Your Lawyers Limited [2021] 3WLR 598, a non-disclosure agreement signed by Harcus Sinclair contained a six year non-compete clause whereby that firm wouldn't accept any instructions from clients to a particular group in a contemplated class action, which again was ultimately upheld by the Supreme Court as necessary to protect the legitimate business interests of Your Lawyers Limited. The Court relied upon a string of employment covenant cases which consider the reasonableness of the employment covenants involving senior employees.

Non-Compete Clauses Are Potentially Enforceable

The lessons that can be learnt from these two recent decisions are that non-compete clauses are potentially enforceable provided they are tailored to the individual employee's present role at the time the contracts were entered into, and are proportionate.

Readers will be aware that the government has undertaken a consultation on the enforceability and desirability of non-compete clauses which ran until the 21 February 2021 and an outcome is eagerly awaited by employers as to the future and forcibility of such terms.

If you require further information on the drafting or enforceability of restrictive covenants please contact Michael Delaney in our Employment Law team on 07909 912 564, or complete the form below.

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