Are non-compete clauses a good idea?

Career advancement is a big life goal for a lot of people, with many working hard to develop their skill set and build experience in hopes of progressing into more advanced roles over time.

However, for many of these hardworking hopefuls, a clause in their employment contract may be set to get in the way of their advancement.

‘Non-compete’ clauses refer to a clause within a contract of employment that sets terms for the employee wherein, upon leaving the business, they’re most commonly unable to work for any competitors or establish their own business in the same sector. But these clauses can even potentially force employees to leave their industry altogether in select circumstances.

Whilst these clauses are more commonly found in the US, where authorities are seeking to have them outlawed due to being dubbed ‘exploitative’ and ‘unfair’, they are also found in a relatively large number of UK contracts. The UK government ran an open consultation in February 2021 on whether non-compete clauses should be allowed at all, and whether employers should be required to compensate employees during this period.

On the use of non-compete clauses as a business practice, Connor Campbell, business finance expert at NerdWallet comments: “The discourse surrounding non-compete clauses has heightened recently with the Federal Trade Commission in the US branding these clauses as exploitative. But the debate over their use started in the UK much earlier – shortly after the height of the Covid-19 pandemic.

“Although these clauses typically appear predatory and disruptive to the career paths of many, from a business perspective, these clauses tend to make a lot of sense. It’s in a business’ interest to ensure that their competitors don’t out-perform them thanks to an influx of industry-savvy talent.

“If a business is set to lose a highly-skilled employee, of course the last thing that business wants is for said employee to start working for their direct competition. That’s where these clauses can be beneficial, although not so much to the employee themselves.

“However, the good news for employees is that these clauses tend not to be favoured in court, with employers having to fight very hard to keep these clauses upheld if the terms are deemed to have been broken.

“Ultimately, the most important factor of a non-compete clause is that they have to be seen as reasonable and only within the means of protecting the financial interests of the business. Anything that is deemed ‘excessive’ will cause the clause to be void in a court of law.

“Businesses thinking about making use of non-compete clauses should ensure that their terms are fair, and ideally, should be willing to compensate employees for the duration of the clause. In the UK, this is most commonly around six months.”