Are non-compete clauses enforceable?

Non-compete clauses are a common inclusion in employment contracts, but are they enforceable? More importantly, if you recruit someone who has the clause with their previous employer, can you get in legal trouble?

Not really, said Nicolas Tang and Alvin Chan from Farallon Law Corporation. Tang is the managing director and Chan, the associate director at Farallon.

An employment contract which contains a non-compete is between the employer and the employee, the two lawyers told HRD.

“It is not really the duty of the new employer to enquire about a non-compete, but if the candidate mentions that he/she is bound by a non-compete, the new employer should try to understand the scope of the non-compete and whether there is a potential breach if the candidate is hired,” they said.

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A non-compete clause which has an “overly broad restriction period” is unlikely to be enforceable, they explained. The same goes for clauses with a broad scope, for example, those that include terms like geographic location or the types of businesses an employee can pursue post-resignation – they’re unlikely enforceable.

“If there is a breach of the non-compete, the party in breach would technically be the employee and not the new employer,” they said.

“Where there is a potential breach, the onus would be on former employer to pursue legal action against the employee and some former employers may not find it worthwhile.”

However, even though the breach is technically on the part of the employee, the two lawyers said that the new employer may also be exposed to liability.

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In this case, you would have to differentiate between hiring a candidate currently working for a competitor and hiring a candidate who is “on the market”.

Hiring a candidate who is currently working for a competitor may be seen as inducing the candidate to leave their employer, they said. In other words, it could like you’re poaching the competitor’s workers.

“In summary, employers may recruit candidates bound by a non-compete, but if the non-compete is brought to their attention, they should try to understand the scope of the non-compete and whether their own actions might expose them to liability in respect of the non-compete,” said Tang and Chan.