1 December 2020

Companies need to get it right to protect against competition

Competition-law

Protect Your Company Against The Competition

With any company, it’s important to protect themselves, and if that’s by putting their trust in non-compete clauses for employees, they should be checking that any post-termination restrictions are appropriate. Whenever an employee leaves the company, and there’s a threat of commercially sensitive data being passed onto a competitor, the restrictions outlined in the employee’s contract are a safety net. This helps protect that information about the operations and customers when it comes to your business.

In a recent case shown in the High Court, while enforcing non-compete clauses, restrictions should not go beyond protecting the legitimate interests of the business. It also mentioned the importance of being clear when it comes to ‘garden leave’. This meaning that employees would work out their notice period by spending it at home.

Regarding Square Global Limited v. Leopard, a broker had a contract that stated he give a six-month notice period and a restriction when it comes to working for a competitor for six months after the end of his employment with the company. After handing in his notice, he left immediately and went to work for a competitor. His former employer referred to the employment contract in place. The broker argued that he’d be dismissed constructively and that this nature in which he was released would mean he wasn’t obliged to give notice and from the non-compete clause in place.

However, the High Court sided with the employer’s argument stating the six-month non-compete was reasonable and that it went no further than simply protecting the employer’s legitimate business interests. The broker, according to the court, was also required to serve out the six-month notice period as well as the six-month restriction.

In comparison, a case in 2014, Ashcourt Rowan Financial Planning Limited v Hall supported the former employee. The restrictive covenant that had been created to prevent said employee from working for a competitor for six months was unenforceable. The covenant itself was too widely drawn, and it went beyond simply protecting the legitimate business interests of the employer.

The covenant ‘in restraint of trade’ had always been regarded by the law as being void. It’s auto-competitive and, as such, is against public policy. It’s, therefore, only enforceable if it’s limited to what’s absolutely needed to protect the business in question.

Our Employment expert Jess Buttaci  said “This serves as a reminder that employers need to make sure that their anti-compete clauses and restrictive covenants are all reasonable enough. Focusing on what would involve the employee being in direct competition with their old employer. It’s impossible to enforce catch-all.”
“When it comes to garden leave, it’s also important to consider how and when it should be tackled. It’s essential that any restrictions have been carefully drafted and check from the beginning.

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This is not legal advice; it is intended to provide information of general interest about current legal issues.

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