Government may invalidate non-compete clauses and restrictive covenants – how will this affect recruiters?

These clauses are used extensively by recruitment agencies to protect their client and candidate databases

The Government wants to explore whether non-compete clauses can unfairly hinder workers from moving freely between employers, and from developing innovative ideas, translating those ideas into a start-up, and growing their business

Editorial Team Legal News, Tuesday 31 May 2016 Jump to Comments(0) 4,376 Views

The Government says it wants to make Britain the best place in Europe to innovate and start up a new business. As part of this, it will look at our employment rules and whether they could be stifling British entrepreneurship by preventing workers from starting up their own business after leaving a job.

Non-compete clauses have also sometimes been referred to as restrictive covenants, restraint of trade, or conflict of interest and are used extensively by recruitment agencies to protect their client and candidate databases.

Employers insert non-compete clauses into employment contracts to restrict a worker’s ability to compete against their former employer after they leave, thereby protecting the former employer’s confidential information or customer relations for a specific period of time. They are used in addition to clauses which relate specifically to confidential information and intellectual property.

In general, non-compete clauses often include:

Restrictions to an ex-worker’s ability to work for a competing business, including one they establish themselves.
Restrictions which prevent an ex-worker from having dealings with the employer’s customers or clients.
Restrictions preventing an ex-worker from hiring workers of the former employer.
Restricting a worker from setting up a business in a geographical location that would disadvantage their ex-employer.

They are mindful of the fact that there are situations in which non-compete clauses are valid and serve a useful purpose, perhaps by restricting workers from immediately working for a direct competitor. There are clearly arguments for and against the use of non-compete clauses.

The focus of this call for evidence is to identify whether there are reasons for believing that non compete clauses written into employment contracts are stifling innovation, particularly for start-up businesses.

This call for evidence is seeking your views on whether non-compete clauses stifle entrepreneurship and innovation by preventing people from: