Some people assert that during May, June and July 2016 one or two things have happened in the political and legal world which may impact on business. And they are right: in the face of some extremely stiff competition, the nuttiest idea of the year is BIS’ proposal to ban post-termination restrictions in employment contracts.
If you care at all about your business at all, please read on. If you are intending to leave your employer and rip out all or part of that business, please also read on.
BIS has issued a “call for evidence” into non-compete clauses which came out on 25 May 2016 on whether non-competes act as a barrier to employment innovation and entrepreneurship. The closing date for submissions is 19 July 2016 and you can reply here: I urge all responsible business owners to reply to this consultation.
Sajid Javid, the business secretary (at the time of going to press), claims that non-competes can “hinder start-ups from hiring the best and brightest talent” and that they are a “barrier to innovation and employment.” This proposal is part of a package of measures designed to improve entrepreneurship in the UK (like Brexit, Mr Secretary?)
All businesses are urged to contribute. In these fevered days, it is easy to think that Government has somehow stopped. It hasn’t, this stuff matters and this is why:
• In a services economy where people and data are the main drivers of wealth and opportunity, businesses are entitled to protect their goodwill. This means their confidential information, their valuable IP and their people. This is the life-blood of their business.
• Most start-ups are well funded, planned and reliant on IP and key data. Most breaches of restrictive covenants are well funded, planned and involve the theft of IP and key data. The most egregious example is the case of UBS Wealth Management -vs- Vestra Wealth (2008) in which numerous UBS employees sought to leave for a start-up and take clients, other staff and confidential information with them. UBS won and was entitled to “springboard” injunctive relief. I acted for a large recruitment business which prevented the theft of client contacts and confidential information which would have involved a business turning over £80m being deprived of £10m because employees thought it wise to act in breach of their contractual and fiduciary obligations to my client. Bad idea. Worse outcome.
• Revenue = multiples of future value. In my conspiracy case, the Chairman/ entrepreneur made it crystal clear: even with a conservative PE ratio of 3:1, £10m = £30m.
• The case law is settled and well-established. The principles are simple and the recent decisions are (rightly) broadly in favour of enforcing restrictive covenants. Why is this? Because courts “get” the first point in this list: restrictive covenants are only enforceable if there is a legitimate business interest to be protected.
• Start-ups can get advice. Further, if they are to succeed then they should invest in developing the USPs for their new business. This business should not be founded on trade theft from their old business. This proposal by BIS militates against entrepreneurship. Please oppose it.
This article originally appeared in the Huffington Post