Restraints of trade restrictions on the cards
Many of us will know someone who has had to go on ‘garden leave’ because of a restraint of trade in their Employment Agreement.
There are two main types of restraints of trade:
- Non-competition: competing with an ex-employer - either by setting up a business or working for a competitor.
- Non-solicitation: poaching an ex-employer’s staff, clients, or industry contacts to their new workplace.
Restraints of trade can only be enforced if they are reasonable. Restraints need to be specific and genuine, and it falls on the employer to prove the circumstances are reasonable.
The Government has now introduced a new piece of legislation to regulate this area of law and it will change the status quo and limit the use of restraints of trade.
Here’s how it’s likely to work:
- restraints could not exceed 6 months
- restraints of trade could only be used when the employee earns three times the minimum wage
- if a restraint is enforced, the employer would have to pay the employee at least half of their normal earnings throughout the duration of the restraint
- the interest the restraint protects would have to be described in the employment agreement
- the restraint would have to fulfil all of these requirements
The big picture
Largely favouring employees, the new bill would stop employers putting in ‘deterrent’ restraints that they know are not enforceable, leaving employees free to take up new job opportunities without repercussions from their ex-employer.
Any compensation payments would be an added expense to employers. Employers would also have to think about including unique, specifically drafted clauses to ensure they comply with the requirements.