Non-compete clauses: legal reality versus practice

Employers often think that a non-compete clause won’t hold up in court. This may be because, when a non-compete clause is the subject of legal proceedings, the court more often rules in the employee’s favor. I suspect this is related to the fact that the employee, as an unequal party to the proceedings, is more likely to be protected.

The actual figures

At the same time, research shows that who initiates the proceedings matters. If the employee is the plaintiff, the court appears to grant a request to suspend the clause in less than half of the cases.

In these types of cases, it’s a matter of balancing interests, where the court weighs the employer’s interest in protecting business operations against the employee’s interest in free choice of employment. The court considers all the circumstances of the case. This makes the court’s decision unpredictable, and it’s preferable for both parties to resolve the matter out of court. Practical solutions

Often, parties can reach agreements regarding certain relationships that the employee, despite working for a competitor, is not permitted to serve for a certain period. This often leads to a win-win situation, preserving the relationship and enabling everyone to move forward.

It is important, however, that the company’s revenue stream is shaped by customers/relationships. If the information concerns other types of competitively sensitive information, such as strategic plans, pricing structures, and purchasing conditions, the employer will not allow the employee to work for a competitor with this knowledge, and the court will – if necessary – have to make the final decision.

Practical advice

Employers: When the employee moves to a new position, it is advisable to re-negotiate the non-compete clause. This prevents a dispute about whether the non-compete clause has become more burdensome after the change in position, and whether it has lost its effect.

Employees: Negotiate the clause upon commencement of employment and seek advice if you are considering a change of employment. The non-compete clause remains a useful tool, but it requires careful application. Only then can you avoid unnecessary procedures and maintain the necessary flexibility in the labor market.

One way or the other.