As the Government’s call for evidence on restrictive covenants closes, employers and entrepreneurs are voicing grave concern over potential changes to employment law which could put British businesses at risk.
A poll by leading law firm Mishcon de Reya reveals UK entrepreneurs believe restrictive covenants are vital for protecting fast growing companies and that changing the law would negatively impact their business. With uncertainty already rife post Brexit, 73% of entrepreneurs also say restrictive covenants are important in attracting and retaining investment which is vital to UK growth. When asked about their view on limiting restrictive covenants, most entrepreneurs (93%) feared clients would be taken whilst almost three quarters (73%) were worried about retaining confidential company information. Interestingly, only two fifths (40%) of the entrepreneurs who have been personally subject to restrictive covenants believe they are enforceable, yet all surveyed (100%) saw these clauses as valuable in protecting their business.
In April 2016 former Business Secretary Sajid Javid opened a call for evidence seeking the views of businesses and entrepreneurs on whether clauses that prevent an individual from competing against their former employer are stifling opportunities to innovate and grow. The call for evidence, which closed on Tuesday, looked for views on whether this type of restrictive practice is acting as a barrier to innovation and employment, therefore preventing start-ups from prospering. Whilst it’s only the start of the consultation, it seems the shockwaves are already being felt.
The survey of employers also revealed that over a third (38%) believe a lifting of current restrictive covenants would result in reduced investment in UK companies. The poll showed that over 4 in 5 (83%) employers found restrictive covenants valuable in protecting their business and that limiting such clauses could put businesses at risk as they fear clients would be taken (81%), staff poached (79%) and valuable confidential information lost (50%).
Jennifer Millins, partner in Mishcon de Reya's employment department, "Striking a careful balance between an employer's right to protect its business and an individual's freedom to work is vital – and something that the courts are very adept at already. The Government's call for evidence appears to reflect a very one-sided view of restrictive covenants. Our poll shows that the protective qualities of restrictive covenants cannot be downplayed, and that UK business and entrepreneurs value their ongoing existence. At this stage, it is difficult to see how legislation in this area will be beneficial to UK businesses".
NOTES TO EDITORS
Mishcon de Reya surveyed 42 companies and 15 entrepreneurs in June 2016.