When Can Employers Demand Exclusivity?

What is an Exclusivity Clause?

An exclusivity clause in an employment contract is one which prevents individuals from doing any work for others, including clauses that only permit working for others with the employer’s consent.

Exclusivity clauses may sit within an employment contract or as part of a restrictive covenant, which could extend restrictions on the type of work someone can do after they leave employment.

When Should Employers Use Exclusivity Clauses?

Exclusivity clauses during employment are important in many industries, particularly in service industries that rely on the skill of individuals, such as hair and beauty, accountants, solicitors, consultants.

Hair and Beauty is a great example, we’ve worked with clients who have had their employees also working in the salon down the road on their days off. They’re providing the same headline service in both salons and customers are quick to find these things out, it won’t be long before there is a price war and clients are finding their stylist or therapist at the cheapest price. In these situations it is perfectly reasonable for employers to insist on exclusivity and not permit employees to work in competition.

Exclusivity clauses may extend to after employment in similar circumstances, particularly preventing an employee leaving and taking clients to their next employer. Employers are able to restrict an employee working for a competitor even after leaving. Those restrictions must be reasonable and only go as far as needed to protect the business, at the same time respecting the employee’s rights to earn a living.

In a time when we are seeing pressures of increased costs on individuals, second jobs or “side hustles” are becoming common and in many cases these are completely unrelated to the industry of someone’s first job. Employers could still enforce exclusivity clauses, these may:

• Enforce no work, paid or unpaid for any other business or organisation
• Enforce no work the conflicts with current employment
• Enforce no work without written permission, which will not be unreasonably withheld.

No work, paid or unpaid, seems very strong for most employers. We all have things we do outside of work that do not impact our ability to perform in our jobs. However, there could be situations where an individual is not working for a competitor but is working excessive hours elsewhere which creates issues with Working Time Regulations and/or safety concerns around lack of rest. Working all day in an office for example, then taking on a night shift elsewhere could be reasonably refused by an employer, whilst working in an office Monday to Friday and then doing one shift in a pub on Friday night is far less likely to be a concern when they have the weekend to recover from both.

Our advice in most situations to clients is - have an exclusivity clause, definitely do not allow working for the competition but for the rest, written permission which allows you to give permission on a case by case basis. There will be situations where this does not apply and deeper discussions are required around post employment restrictions.

When are Exclusivity Clauses Banned?

The exception to all the advice above is when exclusivity clauses are banned by legislation. Since 2015 exclusivity clauses have been enforceable when used in zero-hours contracts. In December 2022, this ban was extended to workers whose net average weekly wages do not exceed the lower earnings limit for the purposes of National Insurance.

Legislation was brought in to protect low paid workers and enable them to supplement their income.

What does the Ban on Exclusivity Clauses Mean for Employers?

As a result of the legislation, dismissing someone for breaching an exclusivity term or working for the competition is automatically unfair if they are on a zero hour contract or income below the lower earnings limit. This protection applies from day 1 of employment. The legislation also protects employees from suffering any detriment such as not being provided with training or being disciplined.

In the examples above, this could create challenges for employers who are employing people on zero-hour contracts or short numbers of hours per week. There may be times where the risks of not having an exclusivity clause are low, for example someone working just weekends whilst also in school or college. These people are likely to be earning below the lower earnings limit and therefore an exclusivity clause cannot be enforced, however, they’re also likely to be junior and therefore with reduced risk of client relationships where a client would follow them to another employer and their education commitments will reduce the chances of them working for multiple employers. In this situation, an employer may be happy with the risk of employing without an exclusivity clause.

Employers should take the opportunity to look at their structures and decide whether zero-hours and/or small numbers of shifts is the best way to employ people in their business when an exclusivity clause cannot be used. Where zero-hours contracts or small numbers of hours is necessary or right for the business the contracts should be reviewed to ensure exclusivity clauses are not included.

Breach of an Exclusivity Clause

When an employee breaches an exclusivity clause and they are not protected from the ban described above, then employers should follow the disciplinary procedure - which may include dismissal, depending on the circumstances.

When a former employee breaches an exclusivity clause, the employer will need to write to them to inform the former employee of the breach and request they desist. If this does not stop the breach then a court injunction may be sought. When an employer can prove they have suffered financial loss as result of the breach they may also be able to make a claim for financial compensation.