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Ben Jones
Ben Jones, UK Lawyer
Category: UK Employment Law
Satisfied Customers: 45758
Experience:  Qualified Employment Solicitor - Please start your question with 'For Ben Jones'
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I am soon to leave my job and have ambitions of starting my

Customer Question

I am soon to leave my job and have ambitions of starting my own company in the same industry. The products that I will develope will not compete with that of my current employer, but due to the relatively small size of the industry (there are on a couple hundred potential clients) and the nature of my current role (Sales Rep), I have come into contact with the vast majority of the industry at one point or another and will have no option of dealing with the same people if I am to do my own thing.
Looking at my contract, im confused as to what I will or will not be able to do regarding setting up my own business. It is worth noting that although currently employed for a UK company and with a contract under english law, ALL of the potential clients for my potential future business would be outside of the UK. Mainly, US, Mexico, Caribbean and Asia Pacific region.
My contract states the two clauses below that I would very much appreciate your input on;
1. NON-SOLICITATION AND NON-DEALING COVENANTS
A) Of existing clients:
The Employee shall not during the period of 12 months after the date of termination of his/her employment with The Company directly or indirectly on his/her account or on behalf of or in conjunction with any person, firm, company or other organisation or entity either:-
a) conduct Restricted Business; or
b) canvass or solicit or by any other means seek to conduct Restricted Business with any Restricted Client with whom The Employee shall have had material dealings in the course of his/her duties during the Relevant Period.
B) Of prospective clients:
The Employee shall not during the period of 12 months after the date of termination of his/her employment with The Company directly or indirectly on his/her own account or on behalf of or in conjunction with any person, firm, company or other organisation or entity either:-
a) conduct Restricted Business; and/or
b) canvass or solicit or by any other means seek to conduct Restricted Business
with any Prospective Client with whom The Employee shall have had material dealings in the course of his/her duties during the Relevant Period.
DEFINITIONS
"Restricted Business" shall mean any business or activity carried on by The Company at any time during the Relevant Period and in which The Employee shall have been directly concerned during the Relevant Period.
"Restricted Clients" shall mean any person, firm or company or other organisation or entity who was at any time in the Relevant Period a client of The Company.
"Prospective Clients" shall mean any person, firm, company or other organisation or entity who at the date of termination of The Employee's employment with The Company has been directly approached by and engaged in negotiation with The Company with a view to engaging The Company's services.
"Relevant Period" shall mean the 12 month period preceding the date of termination of The Employee's employment with The Company, ending on that date.
AND
PREVENTION OF EMPLOYMENT BY CLIENTS
The Employee shall not during the period of 12 months after the date of termination of his/her employment with The Company directly or indirectly be engaged or employed by any Restricted Client with whom The Employee shall have had material dealings in the course of his/her duties during the Relevant Period.
DEFINITIONS
"Restricted Clients" shall mean any person, firm or company or other organisation or entity who was at any time in the Relevant Period a client of The Company.
"Relevant Period" shall mean the 12 month period preceding the date of termination of The Employee's employment with The Company, ending on that date.
Hope you can help!
Rgds
Submitted: 1 year ago.
Category: UK Employment Law
Expert:  Ben Jones replied 1 year ago.

Hello how would your employer be affected if you were to ignore these restrictions?

Customer: replied 1 year ago.
It is unlikely to affect them what so ever. They would perhaps argue that we are competing for the same money - The companies in the industry have a finite amount of money to spend and therefore I would be going after their limited budget, but my potential future product in the usual sense of the word, does not compete at all.
Expert:  Ben Jones replied 1 year ago.

Hello, sorry I was offline when you replied earlier. Post-termination restrictive covenants are a rather common occurrence in employment relationships. An employer would want to protect their business from a departing employee's knowledge, business connections, influence over remaining staff, etc. However, a covenant that restricts an employee's post-termination activities will be automatically unenforceable for being in restraint of trade, unless the employer can show that it was there to protect a legitimate business interest and did so in a reasonable way.

Legitimate business interests (LBIs) are commonly accepted to include:
• Goodwill (including supplier and customer connections)
• Trade secrets and confidential information
• Stability of the workforce

An employer cannot apply a restrictive covenant just to stop someone competing with their business, but it can seek to stop that person using or damaging their LBIs by using a reasonably drafted covenant. There are a few different types of restrictive covenants that can be applied, these being:

1. Non-solicitation covenants are there to prevent an employee from enticing away the customers of their ex-employer and as long as they are reasonable are the most commonly enforced type of restriction. Solicitation generally means “directly or indirectly requesting, persuading or encouraging clients of the former employer to transfer their business to their new employer". To be valid, the covenant should be restricted to customers with whom the employee had contact during a specified period before leaving. Other relevant factors may include the employee's level of seniority in the business, the extent of their role in securing new business and the length of similar restrictions in the employment contracts of competitors. In your case you are not really soliciting clients to leave the business of your ex-employer and come to work with you, especially as you are not directly competing with them.

2. Non-dealing covenants are a wider restriction and not only restrict solicitation but any other general contact with clients. The enforceability of a non-dealing covenant will depend on the interest being protected and can be influenced by a substantial personal connection the employee enjoys with a specific client. However, such a covenant will not be enforceable if it prevents any sort of contact with the client. The restriction must be focused on the specific type of contact that would directly affect the employer's business.

3. Non-competition covenants prevent an employee from working with a competing business or setting up to work in competition with their ex-employer. Such general restrictions are seen as a restraint of trade and will be difficult to enforce. They will only be seen as reasonable if in the process of working in competition, the employee uses trade secrets or sensitive confidential information belonging to their ex-employer, or their influence over clients is so great that such a restriction is necessary. The length of the restriction and its geographical coverage will also be relevant.

Whilst restrictive covenants are mainly used as a scare tactic by employers, if an employee has acted in breach of a covenant and the employer is intent on pursuing the matter further they can do so. The following are potential outcomes if the employer takes legal action:
• Obtain an interim injunction preventing the employee from doing certain things that would make them in breach of the restrictive covenant
• Seek compensation for damages that have directly resulted from the breach of the covenants

As you can see there are no hard and fast rules on restrictive covenants. Whether a specific restriction is enforceable will always depend on the individual circumstances, the interest being protected and whether it has been reasonably drafted. The above principles are what the courts will consider when deciding whether a restriction is going to be legally enforceable. It should give you a good idea of what to look for in your situation and decide what the chances of this being pursued further are.

I trust this has answered your query. I would be grateful if you could please take a second to leave a positive rating (selecting 3, 4 or 5 starts at the top of the page). If for any reason you are unhappy with my response or if you need me to clarify anything before you go - please get back to me on here and I will assist further as best as I can. Thank you

Customer: replied 1 year ago.
Thanks Ben, helpful stuff.What about the geographical scope as I understand this is an important factor. My company is in the UK, but with no clients within Europe. Does this make a difference?Also, the reasonableness of the non-dealing covenant - this industry as I mentioned is small and as a result, people often move from one organization to another. My contract states that I can not engage with clients or prospects that I dealt with during my employment. But if that is true, that eliminates the possibility of me being able to stay in this industry altogether.Like I mentioned, the future plan is for a non competing product. I also do not hold any trade secrets. What possibly could be the LBI's that they would try to protect? If it were any normal person, I wouldn't be concerned, but the owners of my company have a tendency to be spiteful.
Expert:  Ben Jones replied 1 year ago.

Geographical cover is mainly important in terms of ensuring the restriction is not too wide, so for example a worldwide restriction would be a lot more difficult to enforce than a more local one. As to dealing with clients, if a wide restriction about nit dealing with any clients you have worked with during your employment means that you cannot work in the industry it can easily make this an unreasonable restriction. The LBIs are really the ones I mentioned, they are the main ones and the ones that you will most likely come across so unless they can show that they are affected then it is unlikely that the employer can justify the use of the restrictions. Hope this clarifies things a bit more?

Expert:  Ben Jones replied 1 year ago.

Hello, I see you have read my response to your query. Please let me know if this has answered your original question or if you need me to clarify anything else for you in relation to this? If your query has been dealt with please take a second to leave a positive rating by selecting 3, 4 or 5 starts from the top of the page. If you need further help please get back to me on here and I will assist as best as I can. Thank you.