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Employment
  • Published:
    06 May
  • Area of Law:
    Employment

Do non-compete clauses hinder innovation and entrepreneurs?

The Government has launched a call for evidence as it seeks views on whether ‘non-compete’ clauses act as a barrier to innovation and employment. In some cases, it has been suggested that non-compete clauses can hinder start-ups from employing the best talent and that they act as a barrier to innovation.

Non-compete clauses are often written into an individual’s contract of employment and seek to prevent that individual from setting up in competition with the former employer or working for a competitor for a set period of time. Such clauses are only enforceable if they are intended to protect legitimate business interests and are no wider than reasonably necessary.

While business’ response to this enquiry will be of great interest,it seems unlikely that there will be an outright ban on non-compete clauses. What is clear is that a balance needs to be struck between encouraging innovation and protecting business interests; one day these new innovators will also need protection.

What does it mean for businesses?

Employers should continue to use well drafted non-complete clauses which seek to do no more than what is really necessary to protect their business. If these clauses are too wide they will not stand the scrutiny of the court and will not be enforceable.

These types of clauses should, however, not be solely relied upon and contracts of employment should also protect confidential information and prevent the solicitation of customers, clients, suppliers and key members of staff. Prevention is better than cure, as litigation involving alleged breaches of restrictions is extremely expensive for both parties.

Therefore, employers should always carefully manage the exit of all departing employees to lessen the impact. As soon as it’s known that the employee is leaving, ensure the return of all confidential information, limit their contact with key customers and clients, and make sure that important relationships are stabilised with new points of contact within the remaining team.

For more information on the issues raised above, please contact a member of the Employment Team.

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