Non compete clauses

[Zigster]

I work for a small company (>2 years service). A year ago we were bought by a larger company operating in the same sector (we have more of a niche skill set which they didn’t have). Nothing much changed at first, as expected, but we are now being gradually moved over to the new owner’s way of doing things.

We’ve just been issued with new contracts to bring us into line with the rest of the business. These new contracts include various restrictive covenants on termination, unusually absent from our previous contracts. I don’t have a problem with most of them (non solicitation of clients, etc) even though they benefit the employer to my, arguable, detriment and with no consideration for me.

The one new clause I do have an issue with is a “non compete” period of six months. I work in quite a niche, technical and client facing role at a fairly senior level and it not realistic to expect that any new job wouldn’t be with a direct competitor. So, in effect, they are trying to change my contract such that, if I left the current job, I would have three month paid notice followed by a six month unpaid period. They have not offered any consideration for what I see as a significant detriment. If, when I took this job, there had been a non compete clause written into the contract, I would probably not have taken the job.

So I’ve written to HR saying they have to remove that section if they want me to sign it.

First impressions are they are unlikely to back down so I wondered what other options I have. I’d be happy leaving this job and moving to a different company if it came to it, but I like my colleagues and the general work environment so I’m not inclined to take the nuclear option unless I have to.

I am aware of the government’s consultation (2021?) on this area and the subsequent proposal to introduce legislation to cap non compete periods at three months.

Any thoughts? For example, what would be a reasonable level of consideration in return for accepting these new, detrimental clauses? A paid non-compete period would probably do it for me as it would make them think twice about enforcing it, but is that reasonable?

[NDA]

There are some qualified legal types on here - I'm not one.

My broad-brush understanding on non-compete clauses is that you need to be paid for the period of non-compete. Garden Leave, in other words. Otherwise it's a restriction of trade.

The second point about refusing to sign the new contract - I am not sure what the ramifications of this might be.

[Panamax]

These things usually ride in tandem.

Is there a "garden leave" clause and, if so, what does it say?

Garden leave = employer isn't obliged to give you work to do and can choose to pay you to sit at home instead.

[Zigster]

Yes. All the usual points you would expect to see in an employment contract are covered - e.g. garden leave. The non compete clause is on top of all of this.

I don’t believe it is as simple as saying it isn’t enforceable - for example, the government has shied away from an outright ban on them.

I guess my question is really around what is reasonable for an employer to change in contracts of employment for an existing employee? And my (non lawyer) understanding of contracts is that there always has to be a consideration - i.e. if they want to change my contract what are they going to do for me in return?

[stuthemong]

Zigster said:

Yes. All the usual points you would expect to see in an employment contract are covered - e.g. garden leave. The non compete clause is on top of all of this.

I don’t believe it is as simple as saying it isn’t enforceable - for example, the government has shied away from an outright ban on them.

I guess my question is really around what is reasonable for an employer to change in contracts of employment for an existing employee? And my (non lawyer) understanding of contracts is that there always has to be a consideration - i.e. if they want to change my contract what are they going to do for me in return?

Generally I see contract changes come with a raise, for this reason.

[Panamax]

Zigster said:

if they want to change my contract what are they going to do for me in return?

Unless you're a superstar it's never really worth arguing much about employment contract terms. Sure, you don't have to accept the changes but on the other hand I very much doubt you have any contractual right to an annual pay rise. There may also be "non-contractual" benefits as part of your employment, such as participation in a bonus arrangement or share scheme, which they can stop at any time.

Yes, a non-compete clause can be enforced for a short period IF it is genuinely protecting the employer's business.

You need to consider together the garden leave clause, the notice period and the non-compete. They form a combination of provisions that apply "during" the contract/employment and "after termination" of the contract/employment.

Very often the garden leave clause is the one that bites. Your new employer wants you to start next month but you find your current employer invokes the garden leave clause and pays you to sit at home for six months. Let's imagine you choose to ignore all the legal stuff and start working for the new employer during that garden leave. Next thing you know you're on the wrong end of an injunction from your old employer and they're naming your new employer in the case as well for procuring a breach of contract. It can all get very ugly indeed, and very expensive.

It all comes down to an employer being able to reasonably protect its genuine business interests. amongst other things you may find a clause in your contract which requires you to "devote your whole working time and attention to the employer's business". So no jobs on the side and it would also see you nailed down belt and braces if you started work for a new employer before the old contract had been fully and lawfully terminated.

[FMOB]

The question with non-compete clauses is how enforceable they are, if they have a very wide scope then it is difficult to enforce if it would prevent you earning an income. If the scope is narrow and more specific the prospect a successful enforcement increases.

Are they compensating you for accepting the restriction of a non-compete agreement?

IANAL but have experienced non-compete clauses in an employment contract but they were offering a 10% pay rise and more stock options to sign it. A group of us clubbed together to get a legal opinion on it, it had such a wide scope to generally be unenforceable so free pay rise.

[Zigster]

FMOB said:

The question with non-compete clauses is how enforceable they are, if they have a very wide scope then it is difficult to enforce if it would prevent you earning an income. If the scope is narrow and more specific the prospect a successful enforcement increases.

Are they compensating you for accepting the restriction of a non-compete agreement?

IANAL but have experienced non-compete clauses in an employment contract but they were offering a 10% pay rise and more stock options to sign it. A group of us clubbed together to get a legal opinion on it, it had such a wide scope to generally be unenforceable so free pay rise.

Thanks. Thats where i am with this.

They are asking me to accept new clauses which will create a significant loss for me in certain circumstances. If they were not intending to at least attempt to enforce them, there would be no point including them in the revised contracts. They are not offering anything in return.

If they offered compensation - e.g. if, rather than three months’ notice plus six months’ non-compete, they offered a paid notice period of six months, I would consider accepting. As it is, it is too one-sided. Plus, the government’s recent consultation is likely to mean a six month non-compete would be illegal anyway, which I think makes it even more damning for my employer trying to introduce them now.

From informal discussions with colleagues, we’re all of a like mind. There are other changes (e.g. working hours) which have more of an effect on other people than they do on me but, overall, I think our new parent employer has significantly underestimated how much push back they are going to get on this.

[Forester1965]

Zigster said:

The one new clause I do have an issue with is a “non compete” period of six months. I work in quite a niche, technical and client facing role at a fairly senior level and it not realistic to expect that any new job wouldn’t be with a direct competitor.

It's reasonable for the exact reason you provided.

Assuming you like working there, I'd sign it in return for a sufficient improvement in pay and/or terms. Otherwise this is your one chance to jump ship before being bound by them (there are various ways they can force the issue).

[FMOB]

Zigster said:

FMOB said:

The question with non-compete clauses is how enforceable they are, if they have a very wide scope then it is difficult to enforce if it would prevent you earning an income. If the scope is narrow and more specific the prospect a successful enforcement increases.

Are they compensating you for accepting the restriction of a non-compete agreement?

IANAL but have experienced non-compete clauses in an employment contract but they were offering a 10% pay rise and more stock options to sign it. A group of us clubbed together to get a legal opinion on it, it had such a wide scope to generally be unenforceable so free pay rise.

Thanks. Thats where i am with this.

They are asking me to accept new clauses which will create a significant loss for me in certain circumstances. If they were not intending to at least attempt to enforce them, there would be no point including them in the revised contracts. They are not offering anything in return.

If they offered compensation - e.g. if, rather than three months’ notice plus six months’ non-compete, they offered a paid notice period of six months, I would consider accepting. As it is, it is too one-sided. Plus, the government’s recent consultation is likely to mean a six month non-compete would be illegal anyway, which I think makes it even more damning for my employer trying to introduce them now.

From informal discussions with colleagues, we’re all of a like mind. There are other changes (e.g. working hours) which have more of an effect on other people than they do on me but, overall, I think our new parent employer has significantly underestimated how much push back they are going to get on this.

Then you need to get the contract looked at by a professional so you can all make an informed decision, time is of the essence.

[Mr Pointy]

FMOB said:

Then you need to get the contract looked at by a professional so you can all make an informed decision, time is of the essence.

OP: don't forget that unless you specifically reject the new contract & advise you are only working under the old one you are probably deemed to have accepted the new terms.

In my view six months is too long: many prospetive employers will want you to try & get even the three month wait before you get onboard reduced. You'd have to be very special to be worth a six month wait.

[paddy1970]

You should consider the following options:

1. Negotiate a paid non-compete perood. A paid non-compete period is indeed a reasonable request and is not uncommon in such scenarios. This could be structured as a lump sum payment or as continued salary payments over the non-compete period. The rationale is that if the company values the non-compete clause to the extent of including it in the contract, they should be prepared to compensate for the restrictions imposed on your ability to work. The actual amount or form of consideration can vary, but it should reflect the potential loss of earnings and the limitations placed on your career progression.

2. Negotiate a compromise. If the employer is unwilling to remove the non-compete clause, consider negotiating its terms to make it more palatable. This could involve reducing the duration of the non-compete period, narrowing the definition of what constitutes a "competitor", or specifying the geographic region to which the non-compete applies. These modifications could mitigate the clause's impact on your future career prospects.

[MBVitoria]

You mention that your employer was acquired by a larger company. Under the TUPE regulations they can't just impose new contracts on you, especially with onerous post-termination restrictions.

They may try to say that it wasn't a TUPE transfer (if they bought the business via a share sale) but it's not as simple as this (see https://www.springhouselaw.com/knowledge/reminder-...

As you're over 2 years' service you have unfair dismissal rights (plus additional rights under TUPE to be protected from detriments) so you look to be in quite a strong position.

Unless the new restrictions come with a big raise I'd politely voice your concerns that the impact of the non-compete in particular is effectively to prevent you from earning a living should your employment end for whatever reason and in view of this, you won't be signing unless they can give an assurance of paying you in full during the non-compete period. I suspect you won't hear anything further.

p.s. is the parent company American by any chance? They have a habit of trying to pull stuff like this.

[carlo996]

Get a decent employment lawyer into this. Non-compete clauses are largely useless, the only point of note is transferring knowledge. It’s illegal to prevent you from working and if they’re asking for a contract change you are not obligated to sign it unless you agree. This is typical BS. I was threatened last year with legal action during gardening leave as I refused to sign something similar. Took it to a knowledgeable guy and he tore it up. I could have easily taken them to court over it and broken the contract. But it was better to bleed them for 6 months.

[RichDS]

Morning all
Regrettably have stumbled across this thread as may be impacted.
Work in an exec role (operations) and approached by a larger, direct competitor.
Upon checking my contract it’s 6 months notice + 12 non compete. Literally a one liner on the non compete to effect of you can’t work for a competitor.
Could be doing with some guidance/advice if anyone can help or point me in the right direction.
Thanks

[bad company]

RichDS said:

Morning all
Regrettably have stumbled across this thread as may be impacted.
Work in an exec role (operations) and approached by a larger, direct competitor.
Upon checking my contract it’s 6 months notice + 12 non compete. Literally a one liner on the non compete to effect of you can’t work for a competitor.
Could be doing with some guidance/advice if anyone can help or point me in the right direction.
Thanks

I’m out of date on this subject but suspect that the 12 months non compete is likely to be unenforceable. You’ll probably end up with 6 months gardening leave.

I’d speak with a specialist employment lawyer.

[Forester1965]

RichDS said:

Morning all
Regrettably have stumbled across this thread as may be impacted.
Work in an exec role (operations) and approached by a larger, direct competitor.
Upon checking my contract it’s 6 months notice + 12 non compete. Literally a one liner on the non compete to effect of you can’t work for a competitor.
Could be doing with some guidance/advice if anyone can help or point me in the right direction.
Thanks

You'd need to see the whole clauses and the related section in context to form a meaningful opinion.

[RC1807]

I"m in SaaS sales, with a non-compete clause.

I really don't think my CA based fintech employer would try and prosecute, since others who worked here before are now at competitors.

[Forester1965]

It's a brave person who stakes thousands of pounds, likely tens of thousands, on a hunch an employer is unlikely to follow through with a contractual right.

It's also typical of these kind of restrictions that new/prospective employers are made aware of the restriction(s) and they can become liable for procuring a breach of contract.

Be very careful breaching post termination restrictions.

[ATG]

Forester1965 said:

Zigster said:

The one new clause I do have an issue with is a “non compete” period of six months. I work in quite a niche, technical and client facing role at a fairly senior level and it not realistic to expect that any new job wouldn’t be with a direct competitor.

It's reasonable for the exact reason you provided.

And it is unreasonable for exactly the same reason.

The firm wants to temporarily delay itself from facing the current staff member as a competitor ... obviously. And the staff member doesn't want to be unemployable during that period ... obviously.

The firm cannot reasonably ask the staff member to remain unemployed for the firm's benefit without offering something in return. This is a bog standard problem in any business that is specialist in nature and therefore employs staff who are valuable because of their specialist knowledge and experience. The firm cannot reasonably ask the staff member not to maximise their earning potential without offering something in return.

Being an employer is nothing special. Offering people employment is not doing them a favour. You strike a bargain when you employ someone. If you want to vary the terms, you need to strike a new bargain. You cannot expect employees to swallow something to their detriment.