Last week the government announced two consultations to consider the strengthening of existing non compete provisions in contracts.
On the basis that exclusivity and non compete clauses are an impediment to innovation and job creation, it proposes an extension of existing legislation relating to exclusivity and a wholly new ban or payment requirement on non compete clauses. If implemented, the latter could significantly affect recruitment businesses, who are highly protective of client and candidate confidential information and their business know how. The consultations close on 26th February 2021.
Restrictive covenants in contracts of employment often include a clause prohibiting working for a competitor or establishing a competing business following termination of their employment. Depending on the role of the employee and nature of the employer’s business, restrictions can vary in time and scope. The Courts tend to use the test of reasonableness when deciding a dispute, seeking to strike a balance between the competing interests of employer and employee. Where a restrictive covenant exceeds the need for protection, an offending clause may not be enforceable.
Enforcement of these kinds of covenants is often used as a last resort by the affected employer, but most see the need for inclusion of such a clause as essential for business protection, not only to restrain the competing ex-employee but also to deter other existing competitors from poaching staff. Desirability also depends on which side of the fence that you are sitting, with employees no doubt keen to avoid restrictions. The government plans to regulate.
A total ban on non-compete clauses, or a payment of up to 100% of wages to the employee for the duration of the restriction period. Allowing the position to remain as current does not appear to be an option, although of course this could be an eventual outcome.
The consultation does not suggest any change to confidentiality clauses or the legal position where a competitor induces a breach of contract by the employee, which remains a tort (i.e. a breach of common law).
Existing legislation prohibits inclusion of exclusivity clauses in contracts that have no set hours. The exclusion is proposed to also apply to contracts that do have set hours and payment of less than £120 per week. Most agencies do not use these kinds of clauses that effectively prohibit workers from seeking work elsewhere during the period of the contract. A restriction already exists in the Agency Conduct Regulations and in any event most would view prohibition of this kind as unfair.
The Association of Recruitment Consultancies will be responding to the consultations. If you agree with one or other or both proposals please email firstname.lastname@example.org and type in the subject line ‘N C agree’ or ‘EX agree’ (or both); otherwise let us know your comments.
For advice on restrictive covenants, enforceability, employment contracts terms we recommend you contact our legal advisers Lawspeed who specialise in contracts relevant to the recruitment industry. Email email@example.com to arrange an initial free and no obligation discussion.