Competition Law Invalidates Confidentiality Clause

Businesses often seek to protect themselves by inserting confidentiality clauses and anti-competition clauses in their contracts of employment and commercial agreements, so that if an employee leaves or the contractual relations end, the potential commercial damage to the business is minimised.

However, the drafting of such clauses is fraught with potential pitfalls because the courts will not enforce a clause which is too widely drawn.

In a recent case, the former director of a company (now in liquidation) which had entered into an agreement with an office machine company went to the High Court to argue that his erstwhile employer's confidentiality agreement had been breached by the other company. The office machine company claimed that the agreement as it had been written was in breach of competition law and was thus invalid. The purpose of the court hearing was to determine whether the case was arguable.

Although the Court found that the former director's claim was arguable, it ruled that part of the agreement did breach competition law, because it went beyond what was reasonable to protect his former employer's confidential information and was without limit as to its area or time of application.

An agreement which breaches competition law will not be upheld by the court and in some circumstances (where there are anti-competitive effects which distort market conditions) could lead to action being taken by the Office of Fair Trading. For advice on drafting all commercial agreements, contact Roger Sands on 01752 292316.