Ensuring that staff are available for work, and unable to work for competitors, can often be key to running an effective business.
The following practical guide to exclusivity clauses looks at how these types of clauses can be used in the employment context, and when these are legally enforceable.
What is an exclusivity clause?
By definition, in the context of employment contracts, an exclusivity clause is any term by virtue of which an individual is prohibited or restricted from doing any work otherwise than under their contract of employment. An exclusivity clause in a contract of employment is essentially designed to prevent workers from taking on additional work with other employers, where a person will be contractually prohibited or restricted from finding work elsewhere.
The concept behind exclusivity clauses is relatively simple: as an employer, you will want to ensure that your staff are available to undertake their employment duties when you need them to do so. You may also want the option to prevent that employee from working for others, including but not limited to your competitors, in this way controlling whether they are able to work for another employer outside of their working hours.
There are good reasons for doing this, from wanting to know that your employee is available and focused entirely on your business, or not competing directly with your business interests, to a need to ensure that your staff receive adequate rest under the Working Time Regulations.
Examples of exclusivity clauses
The wording of exclusivity clauses may vary depending on the industry role and restrictions sought, although common examples of these types of contractual provisions include:
- Example one: “You shall be employed solely by [company name] and must carry out the duties highlighted under your job description. You shall neither directly or indirectly render services of a business nature to any other person or organisation”.
- Example two: “During your term of employment with [company name] you shall devote your full working time to the business of the company. You may not directly or indirectly engage in any activity competitive with the company’s business interests”.
- Example three: “By signing this contract you agree that during your employment with us you will not render services for any third party, or for your personal account, that conflicts with your duties to the business. You must adhere to this during your period of employment and within a further six months after it ends”.
Restrictions on use of exclusivity clauses
In 2015, legislation was introduced by the UK government to ban exclusivity clauses in zero hours contracts, based on the rationale that using these types of clauses when work is not guaranteed by the employer is fundamentally wrong. This is because the clause would prevent someone from looking for additional work elsewhere to boost their income, even if they were not earning enough money to live on from their current employer. The mechanism of the ban is therefore to make exclusivity clauses unenforceable in any zero hours contracts, meaning employers cannot force workers to comply with such clauses.
Under the Employment Rights Act 1996, employers are prohibited from the following actions in relation to individuals on zero-hours contracts:
a. Preventing them from working for another employer by including an exclusivity clause in their contract.
b. Treating them unfavourably if they choose to work for another employer.
c. Dismissing them for working for multiple employers. However, only those who are legally classified as employees can bring a claim for unfair dismissal in such circumstances.
The legislation making exclusivity clauses unenforceable also gives zero hours employees the right not to be unfairly dismissed, for which no qualifying period is required, and zero-hours workers the right not to be subjected to any detriment at work for failing to comply with a purported exclusivity clause. By providing a means of redress for workers if an employer fails to comply with the ban on exclusivity clauses, this allows an individual to take their case to an employment tribunal, which can then award them compensation.
However, even though exclusivity clauses have been prohibited in the employment contracts for zero hours workers for some time now, it is still not uncommon for these clauses to be used for workers whose role guarantees a minimum number of hours or pay. In fact, the use of an exclusivity clause in employment contracts across various different industries and job roles remains common practice — and legally enforceable.
On 5 December 2022, the Exclusivity Terms for Zero Hours Workers (Unenforceability and Redress) Regulations 2022 came into effect. The legislation extended the existing ban on exclusivity clauses for zero-hours workers to include employment contracts where the average net weekly earnings are at or below the Lower Earnings Limit, which is currently £123 per week.
The ban on exclusivity clauses remains enforceable regardless of whether an employer includes an exclusivity clause in the contract or claims the employee has breached their contract by working for another employer. This is because any clause that violates the law cannot be enforced by the employer.
Legal considerations when using exclusivity clauses
Exclusivity clauses give employers the confidence to retain and hire, knowing that their workforce is focused only on their business. It can also help an employer to comply with its statutory duties under the Working Time Regulations, where workers must not work more than 48 hours a week on average, unless they have opted out of the maximum weekly limit, and they must take adequate daily and weekly rest breaks for health and safety reasons. Exclusivity clauses can therefore be an effective way of protecting your business interests.
Still, even where there are legitimate business reasons for including and enforcing an exclusivity clause in employment contracts, you should always first assess what alternative steps can be taken to meet your operational needs. You should also ensure that the potential power imbalance created by making your staff reliant on you as a single employer is redressed through a minimum guaranteed income and number of hours.
However, despite the fact that a significant proportion of those who responded to the Government consultation advocated for a general ban on exclusivity clauses unless an employer could show they had a legitimate business reason for enforcing it, such as as protecting intellectual property rights or confidential information, this is not something currently on the horizon. The government chose instead to prioritise those in insecure employment, in this way helping individuals hit hardest by the pandemic.
The legal position is therefore this: exclusivity clauses can continue to be used, and may be legally enforceable, except where someone is on a zero hours contract or their guaranteed weekly income is equal to or less than the current LEL.
Equally, it is important that for those workers for whom an exclusivity clause can be lawfully used, the wording of that clause is sufficiently reasonable in scope so as to be enforceable. An exclusivity clause is essentially a restrictive covenant, restricting or prohibiting a person from working for another employer. As with other restrictive covenants, these are only enforceable if they are designed to protect a legitimate business interest and are reasonable in scope. This means that even if an employee has agreed to work subject to a covenant which restricts or prevents them from working for someone else, it must not be more than is reasonably necessary for the protection of your legitimate business interests.
An ideal way to get around any legal risk around the scope of exclusivity clauses is to ensure that the clause is widely drafted so as to simply prevent an employee from undertaking other work ‘without the consent of the employer’. This will enable you and your employee to reach an agreement about the other work the employee would like to do whilst employed by you, where appropriate, and provided you do not unreasonably withhold consent, this type of clause is unlikely to cause any problems. By providing your staff with the opportunity to discuss with you any other work that they may wish to do to top up their income, this will also help to create a positive working environment where the employee feels confident in keeping you informed and still committed to the success of your business.
Best practice guidance when using exclusivity clauses
When using exclusivity clauses in employment contracts, it is important to know how to avoid the most common pitfalls, ensuring that these contractual provisions are both reasonable and enforceable, and that you do not fall foul of the law.
It’s always best to seek advice from a legal expert when it comes to restrictive covenants, although the following best practice “do’s and don’ts” provide a good starting point:
- do provide employees with the right to discuss with you any other work
- do respect the right of your staff to earn a decent living
- do not unreasonably refuse consent if an employee is seeking a second job
Need assistance?
DavidsonMorris are employment law specialists. We work with employers to support effective use of employment contract terms to protect commercial interests. For expert employment advice, speak to us.
Exclusivity Clauses in Employment Contracts FAQs
What is an exclusivity clause?
In the context of employment contracts, an exclusivity clause is any term by virtue of which an individual is prohibited or restricted from doing any work otherwise than under their contract of employment.
What is the main purpose of exclusivity clause?
An exclusivity clause in employment contracts is essentially designed to prevent workers from taking on additional work with other employers, where a person will be contractually prohibited from finding work or pay elsewhere.
Are exclusivity clauses legally enforceable?
The enforceability of exclusivity clauses depends on the worker’s contract type and circumstances. For zero-hours and low-earning workers, these clauses are not legally enforceable, affording them the freedom to seek additional employment. For other contract types, the enforceability depends on the clause’s purpose, and whether it is reasonable.
Author
Founder and Managing Director Anne Morris is a fully qualified solicitor and trusted adviser to large corporates through to SMEs, providing strategic immigration and global mobility advice to support employers with UK operations to meet their workforce needs through corporate immigration.
She is a recognised by Legal 500 and Chambers as a legal expert and delivers Board-level advice on business migration and compliance risk management as well as overseeing the firm’s development of new client propositions and delivery of cost and time efficient processing of applications.
Anne is an active public speaker, immigration commentator, and immigration policy contributor and regularly hosts training sessions for employers and HR professionals
