The basic employment law analysis on all these clauses is that they are anti-competitive and in restraint of trade. As such, they are void because they are contrary to public policy. If an employee contests the legal validity of such a covenant the onus is therefore on the ex- employer to establish that it is a justifiable covenant. The ex-employer will do this if they can show that they do no more than is reasonable to protect his legitimate business interests.
For example, in general in order to justify a non-compete clause the employer should either:-
- have significant local clientele (such as a hairdresser requiring an employee not to work in a competing hairdressers within a radius of 2 miles for a period of 12 months); or
- be able to show that there is significant technical information or trade secrets and confidential information (such as customer lists, price lists, costings, terms and conditions with key suppliers, salary and other sensitive commercial information) which requires such protection.
Interestingly, the courts have been more willing to uphold non dealing and non compete clauses because of the difficulties in policing simple non solicitation clauses. In the past the courts would take the view it was unfair to enforce clauses that prevented employees from pursuing their chosen career, but more recently this has changed.
In the case of Thomas -v- Farr plc, the Court of Appeal upheld a 12 month non-compete clause for a managing director, on the basis that the employer had a legitimate business reason to protect commercially sensitive information that was not client specific and could not therefore be protected by a non solicitation or non dealing clause. Effectively this meant Mr Thomas could not pursue his career in his chosen area of expertise for a year. Again, in the case of TFS Derivatives -v- Morgan, involving a derivatives trader who had moved to a competitor for a better salary, the Court accepted that TFS Derivatives were entitled to prevent him from working with a rival financial house for a certain period of time, as it protected the legitimate business interests of TFS.
So, what restrictions are you under and what can you do to deal with restrictive covenants?