I was recently asked to provide an answer to an employment question posed in Jonathan Moules’ ‘Business Questions’ column in The Financial Times newspaper, which appeared in the Saturday 11 June 2011 edition.
I have reproduced the article in full below, with permission from The Financial Times.
Hard to set up exclusion zone
Q. My brother and I run an independent letting agency based in South London. We are looking to recruit, so are preparing an employment contract. We intend to include a clause to restrict employees from soliciting clients and other employees, but wondered if it would also be possible to add a clause to restrict them from setting up a business within a five-mile radius of ours?
A. Employers often wish to protect their business interests from unfair competition by employees and former employees who are employed in senior positions – and who are privy to sensitive confidential information or have developed strong client connections.
When drafting such covenants, the employer will have to demonstrate that it has not fallen foul of the restraint of trade doctrine.
Any contractual term that purports to restrict an individual’s freedom to work for others or carry out his business is void and unenforceable unless the employer can demonstrate that it has a legitimate proprietary interest that requires protection. Furthermore, any protection should be no more than is reasonable having regard to the circumstances.
The employer should almost certainly include a term within the contract of employment restricting employees from soliciting clients with whom they have had contact during the period of their employment for a period following the termination of that employment. The period of restriction should be no more than is reasonable in the circumstances and will in practice be between six to 12 months.
A clause that prevents a former employee from setting up a competing business within a radius of five miles will be difficult to enforce in an urban area given the size and nature of the population. A geographical restriction of five miles is only likely to be justifiable if the office is based in a rural location where business opportunities are more limited and the employer can establish a substantial personal connection between the employee and its relevant clients.
Michael Delaney is a partner and head of employment at Mathew Arnold & Baldwin, a law firm.
If you would like further advice on this issue, please contact me at michael.delaney@mablaw.com.