Compliance, Legal & Filings 4 Min Read
If you’re a contractor, you’ll probably be familiar with – and frustrated by – non-compete clauses. Added into contracts to curb movement for when an individual leaves a business, non-compete clauses pose particular problems for contractors, who generally move around looking for different opportunities within one industry.
Here we look at what contractors can do to deal with non-compete clauses.
A non-compete clause (sometimes referred to as a non-compete agreement) is a restrictive covenant that’s inserted into the employer/employee contract at the beginning of the employment period.
The purpose of a non-compete clause is to protect a business’s interests with regard to its competition. It generally does this by stating that the employee cannot:
A ‘fair’ non-compete clause would provide a reasonable period of time for which this can be imposed, for example, a matter of months. An ‘unfair’ non-compete clause would suggest that the restrictions were indefinite. In this instance, if it came down to it, a court would likely suggest that this was unreasonable and decide in the ex-employees favour.
Now let’s look at how you, a contractor, can handle a non-compete clause.
Whilst there’s no set date for when this will become legislation, it is on the government’s agenda to limit the length of non-compete clauses to 3 months:
“We want to make it easier for individuals to start new businesses, find new work, and apply their skills to drive economic growth. Non-compete clauses can act as a barrier by preventing individuals from working for a competing business, or from applying their entrepreneurial spirit to establish a competing business”
This is good news for the UK’s contractor workforce, but 3 months without employment may still be too long for some contractors.
Is it possible that you think there is a non-compete clause in your contract when, in fact, there isn’t? Scrutinise your contract for terms such as ‘non-compete’ and ‘restrictive covenant’ to find out exactly what is in place.
If there is no reference to this in the contract, but the employer has told you that there is a clause, you may wish to discuss this with them (this will depend on your relationship). Ultimately, if it’s not in the contract, the employer will find it extremely difficult to claim that there was a spoken agreement.
If there is a non-compete clause, you will need to decide if the terms are workable or if you should take this further.
This won’t be the most favourable option but is an option nonetheless. If the details set out in the non-compete clause seem reasonable to you – for example, you are prohibited from working with a competitor for a set period of time, allow the clause to do its job.
If you don’t already have an offer in place, it will not be a problem, and you can use the time to seek new employment. If you intend to start your own competing business (and the clause simply sets a time frame on when you can/can’t do this), use the time to create a business plan and get everything in order for when you are able to start trading.
If you have an offer on the table, this complicates matters.
If you suspect that your ex-employer will be empathetic to your situation, by all means, discuss the non-compete clause with them.
Perhaps your new contractor role, whilst on the face of it is at a competitor – is actually in an area where knowledge learnt in your previous role is redundant. Or maybe you’re moving a significant distance away from the initial business and, whilst the non-compete clause may broadly state that you can’t work with a competitor, the employer doesn’t consider the new business as competition anyway.
It all depends on your circumstances. Just by discussing the non-compete clause, you may be able to amend the terms of the clause or negate it altogether.
An obvious, and certainly popular way to navigate around a non-compete clause, is to not say anything and take on a new role, in the hope that the old employer either does not find out or has no desire to take the issue any further. However, by doing this, you are in breach of a legal contract and may face ramifications if the non-compete clause is justified.
If you believe that the old employee will push back, discuss your situation with the upcoming employer. If you are prohibited in any way by a non-compete clause, and they’re keen to take you on, they should be able to re-work your offer.
This could be in the form of extending your start date, or if the previous employer is taking action by withholding a significant payment to you, providing you with a sign-on bonus.
A key principle of contract law is that a person should be able to carry out their trade and utilise their skills without being restricted by another person. If you believe that a non-compete clause included within your contract is wholly unreasonable, you could cite restraint of trade.
Choosing to take the issue to court is obviously costly and risky, but if the terms set out in a clause are beyond reasonable and will impede you from taking on further roles within your industry, this may be an avenue that you wish to explore.
The threat of a court case may be enough to convince your previous employer to not take the matter further.
If you are considering this option, it’s imperative that you seek professional advice.
So there you have it, what you – as a contractor – need to know about non-compete clauses. Whilst the steps outlined above hopefully help you navigate around a particularly restrictive non-compete clause, it’s important to recognise that if implemented correctly within a contract, clauses can be fair and legitimate.
We hope you have found this post helpful. Please leave a comment if you have any questions.
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Nicholas is Director, Company Secretarial at QCF, responsible for completing the company’s statutory filings and ensuring all the company secretarial department is fully trained on company law and company secretarial procedures. Nick is also Company Secretary for the BSQ Group and all subsidiary brands, an accredited industry leader and a Companies Act 2006 specialist.
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