Sports Q&A: Non-competes

Q. What is a non-compete?

A. Broadly, a non-compete clause is a type of post-termination restriction (PTR) that prohibits an employee from working for a competitor, or setting up a competitive business, for a set amount of time after their current employment has ended.

Under current law in the UK, there isn’t a fixed limit on the maximum duration of non-competes; however, non-compete clauses (and other PTRs) will only be enforceable if they are no wider than is reasonably necessary to protect the employer’s “legitimate business interests”.

Global approaches to non-compete clauses vary significantly. In some jurisdictions, the use of non-competes is not prohibited at all. In other countries, employers are required to pay for non-competes. In the UK, employers are not currently required to pay for non-competes (and employers will not be required to pay under the government’s latest proposals).

Q. What is the government’s proposal?

A. The government plans to limit the length of non-competes to 3 months. The cap will only apply to contracts of employment and worker contracts in Great Britain.

The government hopes that limiting non-competes will provide more flexibility for employees to switch jobs, or start up a rival business, and that this will benefit the wider economy. The plans were not specifically targeted at the sports industry, but as employers, sports organisations will be affected by the plans.

There are no proposed changes to other types of PTRs, such as non-solicitation clauses (which prevent ex-employees from trying to solicit customers, clients, sponsors etc), non-dealing clauses (which prevent ex-employees from having any dealing with customers, clients, sponsors etc), or non-poach clauses (which prevent ex-employees from trying to poach other employees or members of staff). There are also no changes proposed to paid notice periods, garden leave clauses or confidentiality clauses (although these can be extremely hard to police, which is why some employers seek the protection of a non-compete).

At this stage, we don’t have all the details about the government’s proposals will work. For example, it is not clear whether the government plans to prohibit the use of non-compete restrictions in settlement agreements. It may still be possible for employers to agree longer non-competes as part of a settlement agreement with an employee, in exchange for an additional payment.

The government has also not explained what the implications will be for current non-competes that are longer than three months. We think it is likely that the restrictions will still be enforceable, but will only be enforceable for a up to a maximum of three months.

Q. Are non-competes common in sport?

A. Within sport in the UK, it is rare to see non-compete clauses in employment contracts with professional athletes. Generally, athletes sign fixed-term contracts with sports clubs or organisations, and at the end of those contracts they are free to join other clubs or organisations, including direct competitors, immediately.

Non-competes are seen more commonly in contracts for senior executives, scouts, analysts, engineers etc. We are also increasingly seeing attempts by clubs to include non-compete clauses in manager and coaches’ contracts.

The purpose (legitimate interest) of a non-compete is usually to protect the organisation’s confidential information.

Q. When will this change come into force?

A. There is not a set timeframe for this. There will need to be primary legislation before this becomes law, so it is some way off being implemented. The government has only said that this will happen “when parliamentary time allows”. At this stage, this legislation may not come into force before the next general election.

Q. Should sports organisations be doing anything about this now?

A. Sports organisations can continue to include non-competes in employment contracts, and we wouldn’t recommend limiting non-competes to 3 months until there is certainty about if/when these proposed changes will come into force.

In case these changes do come into force, we recommend that sports organisations consider the following questions:

• Do employment contracts have sufficiently long notice periods? If organisations are concerned about how quickly employees could resign and join a competitor, they should check whether their contracts include sufficient notice periods. During the notice period, the individual would remain your employee and should not start work for someone else.
  
  
• Do contracts include clear garden leave provisions? Organisations could require employees to serve their notice period on garden leave (to send them home and not perform any work on full pay). This will limit the employees access to current confidential information. Employment contracts should have clear garden leave provisions setting out the employer’s right to place the employee on garden leave, and the arrangements which will apply. Please note that garden leave provisions can be challenged if the employer cannot show a legitimate interest which requires protection.
  
  
• Do contracts include sufficient confidentiality clauses? Organisations should ensure that they have appropriate and comprehensive confidentiality/ confidential information clauses. Although these clauses are difficult to police in practice, organisations could look at enforcing these provisions if a former employee shares confidential information with their new employer.
  
  
• Do contracts maximise the protection available from other post-termination restrictions? No cap has been proposed on the duration of non-poach, non-solicitation or non-dealing restrictions (although the usual rules on enforceability will apply). These types of restrictions could be used to provide protection against an ex-employee joining a competitor and then trying to poach other members of the team or interfere with your commercial relationships.
  
  
• Non-competes in settlement agreements? If you are offering a settlement agreement to an employee as part of an agreed exit, you could consider requesting the inclusion of a non-compete as part of the deal. The organisation should allocate a payment in respect of the non-compete in the settlement agreement. It is not yet clear whether the 3 month cap will apply to non-competes in settlement agreements, but organisations could start including non-competes now so that they may be able to rely on this protection if the cap does not apply.

Lewis Silkin has a team of specialist lawyers with extensive experience acting on behalf of clubs and other sporting bodies. Find out more about how we can help here.