Non-compete based on CI
Contract Type:
NDA
Jurisdiction:
The Receiving Party shall not, for a period of [6-12] months after the termination of this Agreement, directly or indirectly, own, manage, operate, join, control, be employed by, consult with, or participate in the ownership, management, operation or control of, or be connected with, any business which is in competition with the business of the Disclosing Party [in the United Kingdom/in the following territories: [list territories]]. For the purposes of this Clause, competition means engaging in a business substantially similar to or in competition with the business of the Disclosing Party as at the date of this Agreement. The restrictions in this Clause shall not prevent the Receiving Party from holding for investment purposes only up to [3]% of the issued shares or other securities of any company listed on any recognised stock exchange or traded on the AIM market of the London Stock Exchange plc.
Explanation
This is a non-compete clause. It prevents the Receiving Party from working for or participating in a competing business for 6-12 months after the agreement ends. ‚Äç
In simple terms, the Receiving Party cannot be involved with a competitor of the Disclosing Party's business for a period of 6 months to 1 year once the contract is over. The non-compete applies in the UK or specified territories.
Competing means engaging in a substantially similar business to the Disclosing Party's business. This stops the Receiving Party from taking knowledge gained and immediately competing.
But the Receiving Party can hold up to a 3% investment in a publicly traded competitor company for investment reasons. This allows passive investment without board involvement.
Overall, this non-compete clause restricts the Receiving Party from actively working for or participating in rival competing businesses for a reasonable limited period after the contract ends.
But it allows flexibility for passive investment.
Non-compete clauses emerged historically from English common law which disfavored restraints of trade that prevented a person from pursuing their occupation. But reasonable limited restrictions came to be permitted. This allowed non-competes to develop as contractual devices to protect business interests.‚Äç
Early English courts took a strict approach against restraints on trade. But over time, limited reasonable restrictions became enforceable if narrowly tailored geographically and temporally. This paved the way for non-compete clauses to arise in commercial practice.
At first, blanket restrictions were used to prevent employees or partners from engaging in any competitive business for long periods after leaving service. But these fell out of favor as overly broad. Narrow non-competes became an alternative means for companies to protect specific business interests for reasonable timeframes.
Especially with increased mobility of labor and knowledge, companies had incentive to limit direct competition using their expertise or relationships. Courts uphold non-competes of a reasonable scope and duration, often 6-12 months in a particular field or geography.
Today, non-compete clauses remain an important contractual tool to protect legitimate business interests and confidential information for a limited transition period after termination of an agreement or employment.
Carefully tailored non-competes are generally enforceable under the common law standard of reasonableness.
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