Non Compete Clauses | Helix Law
If a non-compete clause is unreasonable, and therefore unenforceable when the employment contract is signed, it does not later become enforceable if circumstances later change making it reasonable, the High Court has ruled.
In 2000, an employee was recruited at a salary of £35,000, and his employment contract required him to give one month’s notice if he left. It also contained a non-compete clause to the effect that he could not work for a competitor within 12 months of leaving.
In 2005, following various promotions, he signed a variation of his terms of employment stating his new salary to be £80,000 and increasing his notice period to three months, but otherwise stating that “all other terms and conditions outlined in my original documentation remain unchanged”.
In April 2012, he gave three months’ notice that he was leaving to work for a competitor. His employer summarily dismissed him and applied for an injunction to stop him working for the competitor for 12 months, relying on the non-compete clause.
A non-compete clause is not legally enforceable unless it is reasonable. Whether or not it is reasonable should, under current law, be decided by reference to the circumstances at the time it was entered into.
The employee argued that when the non-compete clause had been entered into, a 12-month prohibition against working for a competitor was unreasonable given his relatively junior status. The employer countered that his acknowledgement in 2005 (that terms and conditions in the original documentation remained unchanged) meant the non-compete clause was agreed to afresh and, given his seniority at that time, the 12-month prohibition was reasonable and enforceable.
The High Court ruled that if a non-compete clause is unreasonable and therefore unenforceable at the time it is entered into, that is the end of the matter. The fact that the clause would have been reasonable if the employee had agreed to it at some later date, when his circumstances had changed, does not mean it is then revived or resurrected as on that date. That the employee had agreed his ‘original terms and conditions remain unchanged’ did not help the employer because, under that wording, a term or condition that was ineffective and unenforceable in the original documentation remained so.
Recommendations
Employers should review the reasonableness of non-compete and similar clauses every time an employee’s duties change and/or they are promoted, to ensure they remain enforceable in the new circumstances. If in doubt, the employee should be asked to agree to new clauses.
Case ref: PAT Systems v Neilly [2012] EWHC 2609 (QB)
Frequently Asked Questions
How Enforceable Is a Non-Compete Clause?
Enforceability of post-termination restrictive covenants is a very sensitive legal area where the precise wording of a clause and contract overall can and will impact enforceability. On the one hand, the courts seek to balance and support the protection of legitimate business interests. On the other hand, the courts are quick to sever or disallow clauses that act as an unlawful restraint on trade- clauses which are too broad and which prevent a person from working even where there is no legitimate business case for the clause are more likely to be unenforceable. A non-compete clause’s enforceability is, therefore, significantly contingent on how it is drafted, what it says, and the context in which it has been used. The specific wording is very important. Factors such as the duration of time, reasonableness of the clause at the time of the agreement, and extent of the impact all go towards how likely or not a clause will be enforceable. Non-compete clauses that do not exceed three months and are reasonably necessary to safeguard the employer’s interests are more likely to be enforceable, but there is no hard and fast rule, and each clause needs to be considered on its merits.
