Agreement Not to Work for Competitors

By Andrew Willis
11 Dec 2020

Various elements make up an employment contract. While certain details may vary depending on the type of business, the basic components in these contracts include:

  • Working hours
  • Notice periods
  • Pay and holiday entitlements
  • Duration of contract
  • Terms and conditions
  • Privacy policy
  • Benefits, etc.

It’s not uncommon for employees within certain industries or job roles to come across an exclusivity clause in their employment contracts.

In this post, we’ll explore the exclusivity clause. We’ll explain what it means and how it can affect some employees.

We’ll also highlight what constitutes a breach of this clause and offer some samples for creating yours.

But for immediate enquiries about exclusivity agreement in employment contracts, you can speak to one of the Croner experts today. Call us now on 0800 141 3800.

What is an exclusivity clause?

Exclusivity clause in terms of employment law is a type of restrictive covenant and normally makes up part of an employment contract. It restricts the type of business or role an employee moves on to after leaving their role.

Bear in mind, there is no standard format for a restrictive covenant that will be enforceable and will very much depend upon the specifics of the case 

Before an individual commences employment at your organisation, you may request that they sign an agreement not to work for a competitor for a specified period after terminating their employment with your organisation.

But can an employer stop you working for a competitor? Yes, but Only if reasonable between the parties and only if reasonable in the interests of the public

This clause aims to protect employer and employee rights. It safeguards information that’s both integral and invaluable to its success such as client or supplier information. It must do this while also respecting the freedom of employees’ rights to work and earn a living.

This means that restrictions must be reasonable, so it:

  • Mustn’t last longer than six months (unless that’s standard in your industry or there are exceptional circumstances).
  • Must only apply to areas where your business functions.
  • Shouldn’t stop them from finding jobs at all.
  • Mustn’t apply to job roles where product or services don’t compete.

In most instances, employees can find details of the exclusivity clause (ban/restrictions) in the contract of employment. It’ll include details of the restriction and the duration.

It’s worth noting, these restrictions can only apply if it means the employee taking the new job might lose the business money. For example, if the employee:

  • Takes customers with them to the new business.
  • Starts a business in direct competition with yours.

Exclusivity clause and zero-hour contracts

When an employment contract guarantees employees regular hours of work and pay, an exclusivity agreement may not necessarily be a bad thing.

However, it can put employees on zero-hour contracts at a disadvantage. An exclusivity clause would mean employees receive no guarantee of any paid work. And, according to their contract, can’t work for other businesses with similar interests. This means they’re effectively left without a source of stable income.

To resolve this, the government introduced the Small Business, Enterprise and Employment Act 2015. Under this act, you’re unable to enforce any clause in zero-hour contracts that forbids their employees from working under another contract or requires their consent first.

In January 2016, the government also introduced legislation to give workers the right to complain to an employment tribunal when they’re dismissed or are at a disadvantage for working for another employer.

Exclusivity clause example

Employees should be able to find details about the exclusivity clause in their employment contract.

While wording and specifics may vary depending on the industry role and restrictions, we’ve provided various exclusion clause samples you can use as a guide when creating your own.

  • Sample one: During your term of employment with <company name> you shall devote your full working time to the business of the company. You may not directly or indirectly engage in any activity competitive with the company’s business interests.
  • Sample two: While employed at the organisation, the employee will not do anything to compete with the company’s present or future business efforts. The employee will not plan or organise any competitive business activity or enter into an agreement which conflicts with their duties to the organisation. The employee must adhere to this covenant while they’re employed by this organisation and for up to six months after their employment ends.
  • Sample three: Employee agrees not to join any company or board that interferes with their duties to the company without prior approval by the directors.
  • Sample four: Employee shall be employed solely by <company name> and must carry out the duties highlighted under their job description. The employee shall neither directly or indirectly render services of a business nature to any other person or organisation either with or without compensation.
  • Sample five: By signing this contract you agree that during your employment with us you will not render services for any third party or for your personal account that conflicts with your duties the business. The employee must adhere to this during their employment period and within six months after it ends

Breach of an exclusivity clause

As with all contracts, not adhering the exclusivity clause can result in a breach of the employment contract.

When a previous employee breaches the exclusivity clause in their contract of employment, the first step is to inform them of this breach and request that they desist from the action that breaches the clause.

If this doesn’t prove effective you may seek a court injunction to stop the employee. If you can prove that the business suffered financial losses as a result of this breach, you may also seek financial compensation for damages. It’s also possible to sue the competing company if you can prove that they encouraged the employee to breach their contract.

Expert support

If you have further questions regarding exclusivity clause or any other HR issue, speak to a Croner expert on 0145 585 8132

About the Author

Andrew Willis

Andrew Willis is the senior manager of the Litigation and Employment Department and assumes additional responsibility for managing Croner’s office based telephone HR advisory teams, who specialise in employment law, HR and commercial legal advice for small & large organisations across the United Kingdom.