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Employment Law Services Ltd

Competition

This is a frequent source of contention.



During the period of employment the position is fairly clear. Employers are under a duty to work faithfully, honestly and loyally for their employer. There is an implied contractual term that they shall not work in competition for anyone else or for themselves. However, this implied term alone does not prevent the employee from carrying out other paid employment. So, if an employer wants to restrict other work there will need to be an express clause in the contract of employment to cover this (link to PAYG contract of employment).



Generally the implied duty of good faith and loyalty will not prevent an employee from preparing to compete so long as the steps taken by the employee do not actually stray over into actual competitive activity. The only effective way to prevent this is to ensure that the contract of employment expressly prohibits this behaviour (link to PAYG contract of employment).Employees are not generally obliged to disclose their intention to leave and complete with their former employer. Some individuals may however owe a duty to disclose any intention to compete with their employer- such as those employees that owe a "fiduciary duty" to their employer (which tends to be limited to those most senior of employees such as directors in a business). 



Competition after the employment has ended can only be restricted in so far as it is reasonable. The courts interpret such restrictions very cautiously. Any such restriction should only apply for a limited period, (ideally no more than 12 months), and to a limited geographical area. In addition the restriction should be as specific as possible as to whom the former employee cannot work for. Without carefully tailoring these restrictions to the particular employee there is a significant risk that a court may rule the restriction to be unenforceable, and there is an accompanying risk that the former employer may be ordered to pay any losses suffered by the individual if the case fails at court. So these clauses (known as restrictive covenants) should be written very carefully. (link to PAYG contract of employment).

 

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