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Innovation and entrepreneurship is being stifled by employment covenants

Posted: 24th May 2016

Katie Williams, Partner, Pinsent Masons 2

Innovation and entrepreneurship is being stifled by employment covenants which prevent professionals and skilled workers taking up new jobs, according to legal expert Katie Williams.

The employment specialist and partner at Pinsent Masons believes overly restrictive contracts could also drive key workers out of the oil and gas industry and create a brain drain.

The UK Government is acting on concerns about the potential misuse of so-called restrictive covenants by calling for evidence on whether such practices act as a barrier to employment.

Katie Williams said: “It’s very common, especially in the energy sector, that employees will have a covenant in their employment contract which prevents them from joining a potential competitor for anything up to 12 months after leaving a job.

“Most employees rightly respect those conditions when they leave, but in many cases it could be argued such covenants were included at the outset of the employment as a ‘knee-jerk’ condition, and when closely examined have little merit.

“The net effect is that highly skilled workers could be forced out of the oil and gas industry and in to another sector where it is easier to find a suitable job. It is prejudicial to moving talent around and in the case of entrepreneurial individuals, it could deter them from starting-up a new business and stifle innovation, which is not something the oil and gas industry can afford at the current time.”

Amid concerns about this widespread practice, the Department of Business, Innovation and Skills has issued a ‘call for evidence’ on post-termination restrictions.

Business Secretary Sajid Javid has asked businesses to give their views on whether clauses that prevent an individual from competing against their former employer are stifling opportunities to innovate and grow.

He said: “The clauses are only enforceable in a court of law if it protects a legitimate interest and is reasonable. However, there have been suggestions that they can hinder start-ups from hiring the best talent, so the government is asking for views from individuals and employers on whether this type of practice is acting as a barrier to innovation and employment.”

Business Comment

Business Comment is the Edinburgh Chamber of Commerce’s bi-monthly magazine. It provides insight on Edinburgh’s vibrant business community, with features on the city’s key sectors, interviews with leading figures and news on new business developments in the capital.
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