Our Q&A looks at the government's proposal on non-competes and what sports businesses should be doing about this now.
Q. What is a non-compete?
A. Broadly, a non-compete clause is a
type of post-termination restriction (PTR) that prohibits an
employee from working for a competitor, or setting up a competitive
business, for a set amount of time after their current employment
has ended.
Under current law in the UK, there isn't a fixed limit on the
maximum duration of non-competes; however, non-compete clauses (and
other PTRs) will only be enforceable if they are no wider than is
reasonably necessary to protect the employer's
“legitimate business interests”.
Global approaches to non-compete clauses vary significantly. In
some jurisdictions, the use of non-competes is not prohibited at
all. In other countries, employers are required to pay for
non-competes. In the UK, employers are not currently required to
pay for non-competes (and employers will not be required to pay
under the government's latest proposals).
Q. What is the government's proposal?
A. The government plans to limit the
length of non-competes to 3 months. The cap will only apply to
contracts of employment and worker contracts in Great
Britain.
The government hopes that limiting non-competes will provide more
flexibility for employees to switch jobs, or start up a rival
business, and that this will benefit the wider economy. The plans
were not specifically targeted at the sports industry, but as
employers, sports organisations will be affected by the
plans.
There are no proposed changes to other types of PTRs, such as
non-solicitation clauses (which prevent ex-employees from trying to
solicit customers, clients, sponsors etc), non-dealing clauses
(which prevent ex-employees from having any dealing with customers,
clients, sponsors etc), or non-poach clauses (which prevent
ex-employees from trying to poach other employees or members of
staff). There are also no changes proposed to paid notice periods,
garden leave clauses or confidentiality clauses (although these can
be extremely hard to police, which is why some employers seek the
protection of a non-compete).
At this stage, we don't have all the details about the
government's proposals will work. For example, it is not
clear whether the government plans to prohibit the use of
non-compete restrictions in settlement agreements. It may still be
possible for employers to agree longer non-competes as part of a
settlement agreement with an employee, in exchange for an
additional payment.
The government has also not explained what the implications will be
for current non-competes that are longer than three months. We
think it is likely that the restrictions will still be enforceable,
but will only be enforceable for a up to a maximum of three
months.
Q. Are non-competes common in sport?
A. Within sport in the UK, it is rare to
see non-compete clauses in employment contracts with professional
athletes. Generally, athletes sign fixed-term contracts with sports
clubs or organisations, and at the end of those contracts they are
free to join other clubs or organisations, including direct
competitors, immediately.
Non-competes are seen more commonly in contracts for senior
executives, scouts, analysts, engineers etc. We are also
increasingly seeing attempts by clubs to include non-compete
clauses in manager and coaches' contracts.
The purpose (legitimate interest) of a non-compete is usually to
protect the organisation's confidential information.
Q. When will this change come into force?
A. There is not a set timeframe for this.
There will need to be primary legislation before this becomes law,
so it is some way off being implemented. The government has only
said that this will happen “when parliamentary time
allows”. At this stage, this legislation may not come into
force before the next general election.
Q. Should sports organisations be doing anything about this now?
A. Sports organisations can continue to
include non-competes in employment contracts, and we wouldn't
recommend limiting non-competes to 3 months until there is
certainty about if/when these proposed changes will come into
force.
In case these changes do come into force, we recommend that sports
organisations consider the following questions:
- Do employment contracts have sufficiently long notice
periods? If organisations are concerned about how
quickly employees could resign and join a competitor, they should
check whether their contracts include sufficient notice periods.
During the notice period, the individual would remain your employee
and should not start work for someone else.
- Do contracts include clear garden leave
provisions? Organisations could require employees to
serve their notice period on garden leave (to send them home and
not perform any work on full pay). This will limit the employees
access to current confidential information. Employment contracts
should have clear garden leave provisions setting out the
employer's right to place the employee on garden leave, and
the arrangements which will apply. Please note that garden leave
provisions can be challenged if the employer cannot show a
legitimate interest which requires protection.
- Do contracts include sufficient confidentiality
clauses? Organisations should ensure that they have
appropriate and comprehensive confidentiality/ confidential
information clauses. Although these clauses are difficult to police
in practice, organisations could look at enforcing these provisions
if a former employee shares confidential information with their new
employer.
- Do contracts maximise the protection available from
other post-termination restrictions? No cap has been
proposed on the duration of non-poach, non-solicitation or
non-dealing restrictions (although the usual rules on
enforceability will apply). These types of restrictions could be
used to provide protection against an ex-employee joining a
competitor and then trying to poach other members of the team or
interfere with your commercial relationships.
- Non-competes in settlement agreements? If you are offering a settlement agreement to an employee as part of an agreed exit, you could consider requesting the inclusion of a non-compete as part of the deal. The organisation should allocate a payment in respect of the non-compete in the settlement agreement. It is not yet clear whether the 3 month cap will apply to non-competes in settlement agreements, but organisations could start including non-competes now so that they may be able to rely on this protection if the cap does not apply.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
We operate a free-to-view policy, asking only that you register in order to read all of our content. Please login or register to view the rest of this article.