4 Oct 2014

Non Competes...

I’m going to start this one by reminding you all that I’m a Recruitment Consultant, not a Lawyer.  I have no lawyerly qualifications and as with any kind of legalese,  the only way you can be really sure that you’re not going to be sued, is to consult someone who is qualified to give you that sort of advice.

And even then, they generally won’t give you a definitive answer.  Because Lawyers never do.

However....as a Recruiter, I do get to observe employment contracts all the time.  In my humble opinion some of the contracts businesses ask their employees to sign are not really worth the paper they're written on.  Whilst many companies do take the contractual side of things very seriously, many don’t!  Well, they don’t until you want to leave, and then they kick up a stink.

I should say that it’s not often that employees and employers end up wrangling over contractual conditions.  But recently, there have been a couple cases that I thought worth sharing should you end up in this position.  The main area of contractual dispute tends to be "non-competes"; essentially these clauses are intended to stop an employee heading off to a competitor taking key clients  with them, sharing sensitive information or poaching other employees.

I think it's fair to say that few people really read employment contracts fully when offered a role.  Generally, the candidate is excited to have been offered a role and they really only look to confirm salary, hours, holiday allowance and bonus structure. I'd advise taking the time to review some of the small print and challenge anything you're not happy with as this is much easier done up front. Once you’ve signed something, you can’t really take it back.

When it comes to non-competes, the comment I hear most often is "it wouldn’t stand up in a court of law".  But to be honest very very few cases actually end up in court, which makes the couple of examples I've seen recently of companies threatening to enforce non-compete clauses seem quite ridiculous.  Going to court to prevent an employee potentially taking information, clients or other staff when they leave would cost an employer a lot of money. Most of the time, it isn’t worth it, for all but the most senior roles who'd have close relationships across a number of key client accounts. 
When an employee has decided to leave, chances are they're going to be staying in the same industry and, likely as not, in the same locality.  So an Account Manager leaving Agency X in Manchester for a promotion, better pay or just to work on different clients is quite likely to end up at a direct competitor of Agency X also in Manchester.

Recently this happened to a candidate of mine.  When handing in her notice to the small independent agency she was working at, her boss reminded her that only that week, he had put a contract appendix on her desk which included new clauses saying that she could not go to work for a competitor. He stated that therefore she could not leave and if she did leave, he would take her to court.  Bearing in mind that this was an Account Manager earning £25k per year, yes she was the day-to-day contact with clients but realistically her leaving wasn't a threat to her current agency.  In this case her original contract (which she had signed 2 years previously) made no mention of these non-compete clauses and whatever her current boss had landed on her desk, had not been discussed, nor signed.  Therefore, I’m pretty sure that would let him down ‘in a court of law’.  Secondly, the agency she was going to worked only in a very specific sector.  Her current agency had no clients in this sector.  So there was no direct threat of her ‘stealing’ clients.  The ‘new appendix’ wording was also extremely broad along the lines of ‘you will not be able to work for any competitor business within a 30 mile radius of Manchester’.  Even had this been part of the original contract, I understand this would be extremely difficult to enforce as it's far too unspecific therefore preventing the candidate from earning a living.
Essentially this boss was a bit of a bully, felt aggrieved that someone wished to leave and wanted to make it as difficult as possible.  After 3 years solid and efficient service this seems a shame rather than recognising that few staff stay in one business for life these days.  In the end the candidate felt they needed to take legal advice and was reassured that a) the new clauses wouldn't be considered part of their contract and b) even if it had been, it was highly unlikely to have been enforceable or to have got to the stage of her being sued.

When I did a bit of research into this, the application of non-compete clauses come down to reasonableness in terms of an employer being able to protect their legitimate interests in ensuring their business isn't damaged by key staff taking commercially sensitive information or directly soliciting specific clients and other staff to encourage them to move with them a new employer. The clauses should not serve prevent staff leaving altogether or even going to a company in the same sector or region where this can't be shown to directly lead to loss of business to the original employer. Thus a court would generally only consider enforcing non-competes for senior level employees who have been instrumental in acquiring and directing client accounts.  In this case, I can quite understand that they may be able to influence clients and there could be multi-million pound accounts at stake, so yes the non compete clauses do become much more important. 

The second example I came across was where the client asked an employee to leave the business.  Not redundancy, just ‘mutual agreement’ (I want you to leave...).  In this example, the candidate had two months notice period and before she left, asked for confirmation that she would be paid her 2 months salary,  which the client concurred.   This is dicey ground, had the candidate taken legal advice, I am pretty sure that this would be classed as unfair or constructive dismissal and yes, in the films, you’d leave with mega bucks.  However, the candidate hadn’t been terribly happy and was very shocked to have been faced with this on what was a normal Monday morning and they thought, they’d rather just leave and take the 2 months salary.  The problems came about when the client reminded the candidate that they had clauses in their contract stating that they could not work for a competitor within a 20 mile radius for a period of 12 months.  When faced with the loss of your job, surely the natural reaction is to find another job – in the same industry and city as that is what you do!  The candidate felt that they’d been effectively told to leave thus surely all bets were off.  Not the case, these clauses can survive termination of the overall employment contract for whatever reason.    The candidate in this case has taken this as a spur to set up on her own but is being extra careful to try and find completely new clients as she is only to aware that if her old boss suspected she was even speaking to previous contacts he'd almost certainly be issuing legal letters. 


As with all legal stuff, there often isn’t a black and white answer.  Which is why I’m a Recruiter not a Lawyer.  But my advice is read your contract before you sign it.  Clarify anything you are uncomfortable with.  This is the time to negotiate and if the employer wants you on board, they’ll negotiate.  Be wary of anything that looks unreasonable – it probably is.  Get a lawyer to check it if you are really worried – it’s the only way you can put your mind at rest.  And also, it is worth remembering that employers are super protective of their businesses, they take it personally when you leave and often, they’re not reasonable or nice about it. No matter how long you’ve given them loyal and committed service.