Employee Competition & Restrictive Covenants

Legal restrictions that prevent an employee or director from competing with their employer or company take numerous forms.   Contractual restraints, such as restrictive covenants, are subject to a legal doctrine prohibiting restraints on trade.  This doctrine applies to any term in a contract purporting to restrict a person’s freedom to trade or to work in the business or occupation of their choosing.

Contractual restrictions on employee competition generally take the following forms:

a) non-competition covenants;

b) non-solicitation covenants;

c) non-dealing covenants;

d) non-poaching covenants;

e) indirect restraints, such as financial incentives not to compete.

A covenant restraining trade will be unenforceable unless it can be shown to be reasonable.  Roughly speaking this means that the person relying on the restraint must  show that it protects a legitimate business interest and that the restraint is no wider than is reasonably necessary for the protection of the interest in question.

Other common restrictions can be imposed by the law, such as the director’s duties imposed by the Companies Act 2006.  Employers can sometimes use these other duties to prevent a person from competing with them.  For instance, employees  have an implied duty of fidelity to their employer which will generally prevent them from actively competing with their employer while they are employed and directors have various fiduciary duties (such as the duty to act in the best interests of the company or their employer).

Spencer has experience advising both employers, employees and directors on employee competition matters such as these.  He has acted for employers, employees and directors in proceedings seeking injunctions to prevent competition, often at very short notice.  He also has practical experience of final hearings that allows him to give realistic advice of what is likely to happen if the case is not settled after an interim injunction is granted.

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