Non-Compete Agreements in the STEM Sector – Considerations for Employers

Non-compete clauses are increasingly prevalent in employment contracts, particularly in the STEM sector. They play a vital role in protecting the intellectual and human assets of a business. However, crafting effective and enforceable non-compete agreements requires careful consideration of various factors which are unique to the STEM industry.

Understanding Non-Compete Clauses in STEM Industries

A non-compete clause is a contractual provision that prohibits an employee from engaging in employment with a direct competitor or starting a competing business for a defined period of time after leaving their current role. These clauses are often included in employment contracts to protect the employer’s intellectual property, trade secrets, and competitive advantage. More broadly defined “post-termination restrictions” (or restrictive covenants as they are often also called) may also prohibit the erstwhile employee from “tapping up” former colleagues, either to effect a team move or to entice individual employees away from their existing employer.

For example, if an engineer leaves one technology company to join a competitor, a non-compete clause may prevent them from using the skills and knowledge gained from their previous employment to benefit the competitor for a specified period, usually in the same geographical area where the employer operates.

Non-compete clauses in the STEM sector can be significant due to the highly specialised skills and knowledge involved alongside the pace of change in technology. However, the enforceability of such clauses can vary considerably depending on their reasonableness and a balance must be struck between protecting the employer’s legitimate interests and not unduly restricting the employee’s ability to work within their field.

The Value of Non-Compete clauses in the STEM sector

Within the STEM sector, employees who are highly skilled and knowledgeable are valuable assets for employers and may be rare depending on their level of specialism. Non-compete clauses can serve as a deterrent for employees to leave and join competitors, thereby helping companies retain their talent pool and maintain continuity in their projects and operations. These provisions ensure fair competition within the sector by preventing employees from gaining an unfair advantage over their former employers by exploiting insider knowledge or relationships developed during their employment.

STEM companies often invest significant resources in research and development to create innovative products. Non-compete clauses can help protect these intellectual property assets by preventing employees from moving to a competitor and immediately sharing their knowledge and skills to benefit the competitor.

STEM employers often invest significant resources in training and development programmes for their skilled employees. Non-compete clauses can protect these investments by discouraging employees from leaving and taking their newly acquired skills or knowledge elsewhere.

Legal Framework and Compliance Obligations

In spite of all that, the law views non-compete clauses as a restraint of trade. As such, they are generally unenforceable unless they protect legitimate business interests and are reasonable in scope, duration, as well as geographical area. Legitimate business interests include trade secrets, confidential information, customer connections, or stability of the workforce, without unduly restricting the employee’s ability to work in their chosen field. These restrictions should be limited to the geographic area where the employer operates and for the duration necessary to protect the legitimate business interests.

Balancing non-compete clauses with employee mobility and innovation

Non-compete clauses should be tailored to protect legitimate business interests, such as trade secrets or specialised skills, common within the STEM sector, preferably without unreasonably restricting an employee’s ability to find new employment or innovate within the field. Further, employers should limit the duration of the non-compete clause to a reasonable timeframe, typically no longer than is necessary to protect the company’s interests. This allows employees to move on to new opportunities after a reasonable period and is particularly important within the STEM sector since employees will usually have a niche and highly specialised skillset meaning their opportunities for new roles will likely be with a main competitor of their previous employer.

In theory, employers should narrowly define the geographical scope of the non-compete clause to only cover areas where the company conducts business or where its competitive interests are genuinely at risk. In a global marketplace this can be difficult; the wider the geographical scope of the non-compete, the more important it will be for the prohibition to be written as narrowly as possible. As noted, the specialised skills required in STEM fields can sometimes limit job opportunities to specific industries or roles, making it more difficult for STEM workers to find work outside of their niche. It is crucial for employers to clearly communicate the terms of the non-compete clause to potential employees including any potential implications for their future career mobility within their specialised field. This allows employees to make informed decisions about their employment and potential future opportunities.

Employers within the STEM sector should consider striking a balance between the need to protect the company’s intellectual property and trade secrets with the encouragement of innovation by allowing employees to continue working on personal projects or developments outside of their employment that do not directly compete with the company’s interests. Given the added considerations of innovation and development within the STEM sector, employers may wish to consider using alternative mechanisms, such as non-disclosure agreements (NDAs) or non-solicitation agreements, to protect the company’s interests without imposing undue restrictions on the mobility of skilled workers.

Non-compete clauses are subject to strict scrutiny by UK courts. Enforcement will depend on the specific circumstances of each case. If a former employee breaches a non-compete clause, the employer may seek an interdict to prevent the former employee from breaching the clause. If the court finds in favour of the employer, it may issue a judgment requiring the former employee to comply with the terms of the non-compete clause. This could include an interdict, damages, or other remedies as appropriate.

Our 5 top tips for employers in the STEM sector when considering non-compete clauses within contracts of employment are:

  1. Ensuring that the non-compete clauses are reasonable in scope, duration, and geographic reach. Overly restrictive clauses will not be enforceable.
  2. Clearly defining the scope of prohibited activities in the non-compete clause. Specify the types of roles with which the employee is restricted from engaging after leaving the company.
  3. Exploring alternatives to non-compete clauses, such as non-solicitation agreements or confidentiality agreements, which may be less restrictive, but still protect your company’s interests.
  4. Getting your non-compete clauses drafted/reviewed by a legal specialist to maximise the likelihood the Courts will enforce them in the event enforcement is necessary.
  5. Regularly reviewing and updating non-compete clauses to ensure they remain relevant and enforceable in light of changes in technology, industry practices and legal developments.

If you have any questions regarding this topic do not hesitate to contact a member of BTO’s Employment Team.

This update contains general information only and does not constitute legal or other professional advice.

Dawn Robertson, Partner & Accredited Specialist in Employment Law: / 0131 222 3242 / Connect with Dawn on LinkedIn