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Here’s What You Should Know About Non-Compete Clauses

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A Daily Slog Reader wants to leave her job but is fearful an overly restrictive non-compete clause may result in her being sued.

Although legally one of the most difficult clauses to enforce, as Emer Murphy from Lavelle Solicitors explains, the Courts have enforced non-compete clauses where they were deemed to be reasonable.
Here’s what you should know about the most controversial of clauses.

 

“My contract contains a non-compete clause prohibiting me from working for a competitor for 12 months after my employment is terminated. The term ‘competitor’ is loosely defined and as worded could potentially include ALL prospective employers as I see it.

For example, it says that a competitor is defined as an organisation with a similar product offering and / or client base and / or revenue stream to my current employer which seems very broad in my opinion.

Also whilst I want to leave the company, I don’t want to change the industry I work in so obviously I am going to look for employment within the sector. Do they expect me to sit at home unpaid for 12 months?! 

My question is, if I was to accept a role at a competitor, could I potentially be sued by my current company? Is there anything I can do to protect myself?”

 

Dear Reader,

The Clause in your contract that you refer to is a restrictive covenant. The reason employers seek to put these clauses in place is to prevent employees taking valuable or confidential information to another competing business. It seems from the information you have provided that your employer is seeking to prevent you from working for a competitor in a similar role to the one you now hold.

These are one of the most difficult restrictive covenants to enforce at law but the Irish Courts have enforced them where they have been deemed to be reasonable.

 

So what is reasonable? 

Generally, the courts do not approve of restrictions on the rights of individuals to earn a livelihood. In order for that clause to be upheld your employer has to show that they;

  • Have a legitimate interest to protect, a general restriction is not enough
  • The restriction goes no further than is necessary to protect its interest
  • The restriction is not contrary to public policy

 

Time Period

The time period must be reasonable.  What is reasonable depends on the time needed by your employer to protect the goodwill of the business or limit the damage done if you go to a competitor.  As a general rule, a restriction for more than 6-12 months will be difficult to justify.

 

Territory

The geographical area to be protected must be reasonable; it cannot be too wide and be more than what is necessary to protect your employer’s business. From your note it appears that the clause in question does not define the territorial limits of its operation.  For example, it could say that it only applies in County Cork or it only applies in Ireland.  A restrictive covenant which does not define the extent of its operation will be presumed to be worldwide. It is highly unlikely that a worldwide restriction will be enforceable.

 

What could your employer do if you accept a role with a competitor?

Your employer could decide to issue proceedings against you for breach of contract in order to enforce the relevant restrictions. This could include an application for an injunction restraining you and possibly your new employer from being in breach of the contract.

 

Senior employees will be in contact with more sensitive information and restrictions placed upon them may be justified as being more onerous

 

What can you do to protect yourself?

The old chestnut of take legal advice applies.

Check your contract and see what your notice period is.  It is usual that any restrictive clause operates from the end of your notice period but that should be stated in the clause.

Also, check to see if there is a Garden Leave provision in your Contract.  If a Garden Leave Clause is included in your contract it can require that you spend all or part of your notice period at home whilst still continuing your annual salary and benefits.

Is there a severance clause in your contract?  If a court held the clause to be unreasonable it could be deemed as void by the court and will not be enforced.  Often employment contracts contain a severance clause which will allow the court to alter the duration of the restraint or the geographical area to what it considers reasonable.

 

A court may also have regard to what is standard practice in your industry in relation to these type of covenants.

 

You do not state what your position with your employer is or what industry it relates to.  For example, senior employees will be in contact with more sensitive information and restrictions placed upon them may be justified as being more onerous. A one year non-compete restriction may be appropriate for a Sales Director for example but an employer is likely to have difficulty enforcing the same restriction on other administrative type roles.

A court may also have regard to what is standard practice in your industry in relation to these type of covenants.

It is important if you are considering moving to a competitor that you are fully aware how the relevant clause and any other possible clauses in your contract could impact that decision.  You have provided a snapshot of your interpretation of the clause but you should go through your contract in full and the details of your employment with a legal advisor so they can provide informed advice on your particular circumstances.

 

This article is for general guidance only and should not be regarded as a substitute for professional advice.  I recommend that legal advice is always taken before acting on any of the matters discussed.

 

About Emer Murphy

Emer Murphy is a Solicitor in the Litigation Department of Lavelle Solicitors, where she specialises in the areas of Employment Law, Commercial Litigation and Personal Injury.

www.lavellesolicitors.ie

 

If you have a career issue you would like help with email the details to us at contact@thedailyslog.com and we will source a suitable professional to help. All correspondence will be kept confidential.

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1 Comments

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