Jean-Yves Gilg

Editor, Solicitors Journal

The death knell for non-competes?

The death knell for non-competes?


The issues raised by the government's consultation on non-compete clauses hindering innovation are more nuanced than might be thought, writes Daniel Oudkerk QC

From an international perspective, senior employees often work in a global market. The relevant employers will not always be UK-based, the contracts may be governed by foreign law, and the employees will often work in more than one jurisdiction. Complex cross-border litigation would be inevitable. 'Non-compete' reform is on the agenda in a number of jurisdictions; for example, in March of this year, Massachusetts proposed restrictions on non-competes, which would limit non-competes to a one-year period and exclude low-paid workers. In practical terms, that 'restriction' would reflect the current position in the UK, where employee non-competes beyond a year are not enforced.

From a domestic perspective, non-competes are rather old-fashioned and many employers now use garden leave to restrict an employee's ability to move. Typically, a modern employment contract will contain a garden leave clause, which permits the employer to keep an employee 'in the garden' for a period of up to 12 months, and a non-compete. The orthodox approach is to draft the contract so that garden leave is off-set against the non-compete period: provided the employer is willing to pay to keep the employee 'in the garden', the non-compete clause is otiose. In other words, if the concern is that non-competes are stifling innovation by preventing employees joining competitors at will, the government would also need to address garden leave.

Further, the term 'non-compete' itself is apt to confuse. The courts never enforce restrictions on competition per se between employers and employees. Rather, for any non-compete to be enforced as reasonable in the interests of the parties and public, 'it must afford no more than adequate protection'.

Finally, even if the argument is restricted to the question of innovation, it is not one way. Non-competes both fetter and facilitate innovation. Start-ups will impose non-competes (or garden leave) to protect their investment and to build a stable team. Dyson, Google, and Amazon have relied upon non-compete clauses to protect confidential information (see Dyson v Strutt [2007] EWHC 1756).

None of this is to suggest that the government is wrong to ask whether non-competes hinder innovation - however, the courts already take account of this aspect of public policy. What the courts have permitted has ebbed and flowed over the years to reflect changing public policy and the modern employment market. The current trend is for shorter restrictions. If the flexible common law approach is to be replaced with a 'one-size-fits-all rule' for non-competes, the government will doubtless consider how such a rule would work in the context of an international employment market and a modern employment contract, in which non-competes may not be the principal mischief.

Daniel Oudkerk QC is a barrister practising from Essex Court Chambers @EssexCourtLaw