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The employee planning to jump ship most likely missed a crucial part of their contract – the non-compete clause.

Urban legends will always circulate about the employee who was frog-marched out of the office when their employer learned that they were going to work for a competitor. But have you heard about the one where the employer takes the defecting employee to court for breach of contract – and wins?

The employee planning to jump ship most likely missed a crucial part of their contract – the non-compete clause. It is easy to do so in the excitement of signing the contract for a new (better paid) job. But this over-enthusiasm could come back to haunt you, in the form of contract law!

Inserting a restrictive covenant into a contract is an employer’s way of limiting their financial exposure when hiring a new member of staff. It shelters the employer’s potential losses should the employee choose to leave. So what is it…?

A covenant not to compete, as it is also known, is a term used in contract law where one party (usually the employee) agrees not to pursue a similar profession or trade in competition against another party (usually an employer). In English, it’s a legally binding clause that can stop you going to work for a direct competitor for a defined period of time.

Solicitor Padraig Lyons explains that there are a number of different types of restrictive covenants including:

• A non-compete clause which prevents an employee from working for a competitor for a defined period of time, generally between 6 and 12 months from the time you leave your position.

• A non-solicitation clause doesn’t prevent you from working for a competitor, but it does prevent you from soliciting customers of your former employer - again up to 12 months post-termination.

These clauses are generally found in the contracts of middle and senior management. They are also particularly common where the work undertaken by a firm has a confidential element or is of a highly specialised nature. They are therefore found in industries where an employee could take client lists, trade secrets and valuable insider knowledge.

“A director of a company or a senior employee would not be surprised to find a clause like this in their contract”, says Lyons. Lyons further explains that once you have signed your contract it is binding and any convenant not to compete that is part of your contract can be enforced by the courts provided that is not excessive in terms of duration or geographical extent.

What is considered excessive will vary depending on the nature of the work, e.g. a Covenant not to work in any similar industry world wide for 10 years would, in all likelihood, be unenforceable.

A case taken in the UK by TFS Derivatives Limited against a former employee centred on the issue of a non-compete clause. The courts found in favour of TFS on the basis that the company was protecting their “legitimate business interests”.

While these types of cases are relatively rare, the main advice that Lyons offers is to read your employment contract thoroughly before you sign it so that you know what restrictions you may come up against if you decide to leave your job.

A little bit of foresight could stop you ending up in front of a judge and make sure that you can take up your new position without any hassle.

Karen Daly