Post Termination Non-Compete Covenants: What does the future hold?

As we all eagerly observe the lifting of Covid-19 restrictions, with the optimism of there being a pent-up demand for ‘normality’ to return, astute businesses will be taking this opportunity to seek out potential opportunities and investments.  As the saying goes: every cloud has a silver lining.

It cannot be overlooked that the pandemic has thrown many businesses into financial chaos, particularly in sectors that have been forced into closure by the restrictions.  Of those affected, some will be grappling with the question of what the future holds for their business.  Will it bounce back to recovery, can investment be obtained, or can the business be sold?  For those looking for business opportunities, the situation can lead to a positive outcome for all parties concerned.

At the same time, the pandemic will have amassed a number of employees who have become disgruntled, perhaps with their current career or their present employer.  A crisis of the magnitude we are experiencing, often leads individuals to re-evaluate themselves and their life plans, with some seeking a fresh start.

It is anticipated that the two scenarios will collide and result in a considerable increase in disputes focusing on breaches of post termination restrictions in contracts of employment.  Businesses will understandably be reluctant to lose key staff to competitors.

For businesses looking to acquire staff, particularly from competitors, restrictive covenants have long caused a headache for businesses looking to recruit an individual, or a team.  The types of restrictions that have become familiar are:

  • Non-compete
  • Non-solicitation
  • Non-dealing
  • Non-poaching
  • Geographical restrictions
  • Duration of the restrictions

In early December 2020, the Government launched a consultation* on measures to reform post termination non-compete clauses in contracts of employment, with the consultation period closing on 26 February 2021.  Whilst the consultation is focused specifically on non-complete clauses, it is also seeking views on other restrictive covenants.

The purpose behind the consultation lies with the Government’s recognition that, as a country, support needs to be given to enable businesses to develop and grow for the good of the economy.  With Brexit and the global pandemic combined, this need has arguably never been stronger.

With non-compete clauses aimed at restricting a former employee’s ability to work for a competitor of the former employer, or to commence a competing business within a defined period following the termination of the employment, it is not surprising that this ‘restraint of trade’ has come under the spotlight as a hindrance to the desired business growth and development in the coming years.

Whilst we all eagerly wait to see what transpires from the consultation and what the future holds for post termination non-compete clauses in contracts, for now at least the present law on this area remains.  Both employers and employees therefore need to be mindful of the employment restrictive covenants that are in place.

There are many predications that, once the lockdown eases, the wheels of business will start turning with great pace, and so to will the desire of businesses to retain their talented employees.  Seeking advice early on this matter is key to ensuring you have the greatest protection for your business needs.

Contact Gemma Newing or a member of the Rooks Rider Solicitors Dispute Resolution team for advice and assistance.

* Gov.uk: Non-Compete Clauses – Consultation on measures to reform post termination non-compete clauses in contracts of employment

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