Can an employer prevent an employee who is leaving the organisation from setting up a business in competition or working for a competitor?
An employer has the right to enforce a restrictive covenant that seeks to prevent a former employee from setting up in competition or working for a competitor, as long as the covenant is relevant, proportionate and reasonable. The covenant must go only as far as is necessary to protect a legitimate interest of the employer.
A clause stating that a former employee cannot compete with the employer or work for its competitors is likely to be unreasonable as it would prevent the individual from working in a particular arena for an indefinite period. The court will place strong bearing on the fact that the former employee has the right to earn a living. The restriction will need to be narrowed to make it reasonable, for example by limiting it to a defined period sufficient to protect the employer's interests.
Where a business is location specific, for example an estate agency or a hairdressing salon, a non-competition restriction could also be narrowed to make it more relevant, proportionate and reasonable by adding a radius clause. This would limit the individual from competing with the employer or working for a competitor within a defined geographical area. This would be more palatable to the courts than a blanket restriction.