Insurance · 25 March 2019

An employee is leaving to work in a rival cafe can a non-compete clause stop them?

coffee shop
You have a right to protect your interests, but in doing so, you must also consider the perspective of your ex-employee
Writing a non-compete clause into your employment contracts could restrict stafffrom setting up a rival business after leaving the company.

Grid Law founder David Walker helps a cafe owner understand their options as a staff member threatens to leave for a rival company nearby, possibly contravening their employment contract.

Question

I have a question about an ex-employee, who is about to breach the non-compete clause they had in their employment contract.

I own a coffee shop in a rural area. One of my employees left six months ago and, in her contract, it states that she cannot work for a direct competitor for five years.

Today, she told me that she’s going to work in another coffee shop which is opening up next month, a mile away.

Where do I stand on this?

Can I enforce the non-compete clause or is this something that is just going to cost me money in court costs?

Answer

Thank you for your question.

There are two issues we need to look at here. We need to decide whether the non-compete clause (a form of restrictive covenant) contained in your ex-employee’s contract is enforceable. If it is, we then need to decide whether it’s commercially viable to do so.

Is the non-compete clause enforceable?

A non-compete clause restricting the behaviour of an ex-employee is generally considered to be unenforceable unless you, the employer, can prove three things:

  1. You have a legitimate business interest to protect;
  2. The restriction is no wider than necessary to protect that interest; and
  3. The restriction isnt contrary to public policy.
I explained these three points in more detail in a previous article When are non-compete clauses enforceable?? However, whilst the principles are the same, that article focused more on commercial agreements.

So, let’s look at this from an employment perspective.

What legitimate business interests could you protect?

There are a number of possibilities. For example, you can protect your trade connections (your relationship with customers, suppliers or other employees), your trade secrets and any other confidential information owned by your business that the ex-employee had access to.

The interests you are trying to protect may vary depending on the employee and their role within your business.

Here are a couple of examples Im making up to illustrate the point.

If your ex-employee was the manageress and there was a significant risk of her poaching other staff members to work with her again, this would be a legitimate interest to protect. In a small, close-knit team, losing other staff members would be very disruptive and potentially damaging to your business.

If she was a waitress, with a bubbly personality and your customers simply loved her, this isnt an interest you can protect. You don’t own? her personality and you can’t stop her using it if your customers find out where she is now working.

Assuming you have identified an interest to protect from that particular employee, is the non-compete clause/restrictive covenant reasonable?

Does it go any further than necessary to protect that interest? Making this decision is a balancing act.

You have a right to protect your interests, but in doing so, you must also consider the perspective of your ex-employee. She has a right to work and earn a living and you can’t prevent this.

All cases are unique and you must look at all the relevant circumstances.

In your case, geography will be a factor. If your ex-employee lives close by and there are limited opportunities to work in a rural area, it will be harder to tip the balance of enforcement in your favour.

Time is also extremely important and your non-compete clause lasts for five years. This is an exceptionally long time to prevent anyone from working for a competitor and I can almost guarantee that it’s unreasonable.

I note that the employee left almost six months ago and the competitor business isnt due to open until next month. For an average employee, six months is probably the maximum amount of time that would be reasonable and enforceable. If she was an experienced manageress and there were very good reasons why the restriction should be longer you may be able to stretch it to a year.

Take a look at some other cases:

Is it worth enforcing the restrictive covenant?


 
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ABOUT THE EXPERT

David Walker is the founder of Grid Law, a firm which first targeted the motorsport industry, advising on sponsorship deals, new contracts and building of personal brands. He has now expanded his remit to include entrepreneurs, aiding with contract law, dispute resolution and protecting and defending intellectual property rights.

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