Government to consult on non-compete clauses, but is reform really needed?

The Government will shortly put out a call for evidence on the use of non-compete clauses, asking whether they are "acting as a barrier to innovation and employment and preventing British start-ups from prospering".

Contractual obligations: Government considers non-compete clauses (Credit: 24oranges.nl via Flickr)
Contractual obligations: Government considers non-compete clauses (Credit: 24oranges.nl via Flickr)

Many PR firms put non-compete clauses into employees' contracts that stipulate that if they leave the agency, they may not work in the same industry, approach the same clients or bring in former colleagues, sometimes for up to nine months after departing.

"The Government is asking businesses and entrepreneurs to give their views on whether clauses that prevent an individual from competing against their former employer are stifling opportunities to innovate and grow," the announcement made on Sunday by the Department for Business, Innovation & Skills says.

The BIS note says: "There have been suggestions that they can hinder start-ups from hiring the best and brightest talent."

Francis Ingham, director general of the PRCA said: "This ultimately has to be framed by the facts of the matter – the more unreasonable a contract is, the less likely it is to stand up legally. And PR practitioners should ensure that they are happy with the contracts they sign, not filled with dread that they might be signing away future opportunities from the word ‘go’."

He also said it was important that the Government took a "genuinely even-handed" approach, saying: "The situation needs to be as fair to the professional who is going client-side as it is to a large agency protecting a long-term account. Reform is in everyone’s interest to make things workable."

Scott Clark, who recently launched healthcare agency SO Healthy after the expiry of non-compete agreements following the sale of Tonic Life Communications, agreed, saying: "I guess that being a business owner who wants to protect his business and his revenue, I understand from the employer's standpoint why non-competes are there – but as an entrepreneur, do I think they can sometimes put in place obstacles to growth? Absolutely – there is a balance to be had."

Nicholas Le Riche, a lawyer specialising in employment law at the firm Bircham Dyson Bell, said non-compete clauses were "essentially non-enforceable unless they can be shown to protect a legitimate business interest and go no further than is reasonable". He said: "That's the position the courts always start from."

Even if they are not likely to be enforced in a court, Le Riche said that non-compete clauses will often have a "deterrent value", commenting: "When we're advising clients, we would say they can have some benefit."

"I do wonder whether non-compete clauses really cause that much of a problem to start-ups and entrepreneurs," he went on to say, adding that access to finance, other red tape and availability of skilled labour were potentially more pressing concerns.

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