What can we do about non-compete contracts?
I left my old company last year and set up a newbusiness with a couple of colleagues. We havetried not to compete with our old firm, but we have customers and suppliers who want to deal with us. However, our ex-employer is threatening injunction proceedings due to restrictive covenants in our old contracts. We have lawyers looking into this, but they are giving conflicting information. Could you offer some advice on how we should tackle this problem?
A. Sarah Ozanne writes:
I’m assuming the restrictive covenants you’re referring to are in the employment contract you had with your ex-employer. These are common and protect the ex-employer’s business should an employee join a rival or set up on their own in competition. The most common type of covenants are: non-compete, non-solicitation of the ex-employer’s clients or suppliers, non-dealing with the ex-employer’s clients and non-poaching of employees from the ex-employer. Employers will also often include confidentiality provisions in contracts to stop key information being exploited by ex-employees.
The law surrounding the enforcing of restrictive covenants is complex, but they are legally void unless they go no further than is necessary to protect the legitimate business interests of the ex-employer. If your ex-employer can prove there’s a legitimate business interest to protect, the question is then whether the restrictions are no wider in duration and geographical and commercial scope than is necessary to protect that interest.
You say the covenants cover 12 months. This is usually the maximum period of time that a court will enforce such restrictions, provided it can be established that period is necessary to protect the ex-employer’s legitimate business interests. The court will also consider the geographical and commercial scope of the restrictions – are the restrictions to which you are subject limited in this way? If not they are unlikely to be enforceable.
If your ex-employer can demonstrate to a court that its business interests have or would be damaged by your breach or proposed breach (more than your business interests will be damaged by being forced to abide by the restrictions), it is likely to grant an interim injunction pending a full trial of the matter. It appears that your ex-employer has already written to you warning you of this potential course of action.
My advice would be to seek advice on the enforceability of the covenants in light of your plan for your business. This should help you choose a course of action that best suits your needs.