Competition clause

Competition clause

What is a competition clause?

While a competition clause is perhaps a legal term that many of us may be aware of, we may not necessarily truly understand the actual workings of one. Yet, they can be such an essential inclusion in many contracts in many industries or sectors.

What is a competition clause?

Otherwise known as a no competition clause, a competition clause is an additional condition in an employment contract. It stops an employee from going off to work with competitors or even industries as a whole after they have resigned from a company. They are a way that a company can protect itself against competitors poaching their staff, having spent the time training them up. It also stops competitors from benefiting from a past employee knowing how their past company runs and operates. Such information can be highly beneficial inside knowledge that can be harnessed to improve the inner workings of an employee's new company. 

How does a competition clause work?

The hope behind a competition clause in contracts between two parties is that confidentiality issues do not arise. It can also be referred to as a non competition clause, but any competition clause in employment contract agreements is a way that companies can protect their client book, but also their intellectual property - to a degree. They will often stipulate what companies or sectors a person can work in after leaving and how long that ban must continue. 

While that sounds significantly limiting on the employee's side, a non-competition clause in employment contract will also compensate an employee for their trouble. The amount of compensation an employee receives is down to the negotiation before a contract is signed, but it is not unusual for a competition clause to compensate an employee a percentage of their leaving salary for several months after they have left the company. 

Advantages of a competition clause

Including a non competition clause in an employment contract is highly recommended as it can help prevent the passing on of intellectual property to another company. Plus, it also means that employees know that they will be compensated for their time away from the industry should they have to leave it for a short while after a resignation. It helps uphold the interests of both parties in a mutually beneficial agreement. 

Contractbook and competition clause

Given how expensive a no competition clause can be to include in a contract, owing to the compensation often associated with it, Contractbook can be a helpful resource in optimizing end contracts. The library of templates, particularly within HR-related and employment contracts, can mean that contracts are swift to draw up. Plus, they allow for collaboration between two parties, so the negotiation stage is far smoother and, therefore, faster and cost-effective. 

Additionally, considering what is at stake, should a competition clause be ill-worded or simply not included, using Contractbook's templates means companies and employees can take confidence in the resulting contract. All templates are legally sound from the outset, so it not only minimizes time creating one in the first instance it also reduces the chances for costly legal disputes in the future.

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