Reform of restrictive covenants: our clients' views

Many of our respondents recognised that it was a two way street: banning non-competes would make hiring new talent easier. As one respondent candidly put it: "It would be easier to hire people from our competition and benefit from their networks of contacts more quickly. It works both ways." However, concern about the inability to protect their business interests from unfair competition far outweighed this for most respondents: "Our competitors would be more likely to obtain access to confidential business information."…"Fee earners would be free to go to competitors and damage our valuable business"…"It would mean that I could no longer have Associates as my business would be too vulnerable if they chose to leave and compete against me, having been introduced to all of my clients."

Around 70% of those employers surveyed would be content to rely on other restrictive covenants to protect their business interests if non-competes were banned.

Our research shows that employers still have work to do to ensure their covenants go no further than necessary and that their restraints are reasonable and therefore enforceable. In response to one of the Government's specific questions, 98% of respondents to our survey tend to use non-compete clauses only for highly paid employees and workers, and very few of our respondents said that they would use them for low paid employees and workers. A few, however, told us that they use non-competes in all of their contracts. Higher pay is often correlated with seniority, access to confidential information and influence on clients/staff, indicating that non-competes are usually more likely to be considered reasonable for highly paid employees. However, there is no reason to give salary level any particular significance in determining the reasonableness of a non-compete. Some of our clients quite rightly objected to the Government's question: their decision to impose a non-compete covenant would not necessarily be remuneration-based, but rather focuses on whether the employee could cause significant damage if they were to compete: "The rationale for a non-compete is to avoid commercially sensitive information being used by competitors or for commercial gain against us. That can sit with higher or lower paid workers."

When drafting covenants, it is necessary to determine what level of protection is reasonably necessary in each case: two employees at the same level of management or pay grade may have differing influences over the clients and vastly different knowledge of confidential information. Consider carefully, on a case by case basis, the restrictions that may be required. What are the risks to the business if that particular individual were to leave in the future? Will that individual have relationships with clients, or influence over other staff? Will their access to confidential information make them a competitive threat if that individual joins a competitor or sets up in competition immediately after leaving? If so, for how long? By addressing these sorts of questions and drafting accordingly within the tested parameters, restrictions are more likely to be enforceable. For the time being at least, all employers are well advised to make the most of the protections that properly drafted restrictive covenants can afford.