By John Burfitt

There’s little new about the inclusion of non-compete (also known as non-competition) clauses in employment contracts. In most instances, a non-competition clause covers when a chartered accountant moves over to work for a competitor, including factors such as limiting the disclosure of classified information, placing geographical restrictions on where employment is permitted and applying a timeframe for when employment may occur.

But in the wake of recent job losses and almost 1500 redundancies across Australia’s Big Four accounting firms as a result of COVID-19, what is emerging is a decidedly more apathetic attitude towards non-competition clauses.

The reality of non-competition clauses

One accountant, Robert [not his real name] had his position at a Big Four firm made redundant in July. Only days later, he was offered a new role with a client. When Robert informed his manager about the offer, he was given official clearance of the non-competition clause and readily accepted the new job with the former client.

“Another in my team who had also been made redundant, however, was also approached by a client she had been working with,” Robert says.

“When she spoke to our boss, she was reminded of the legal status of the non-competition clause and informed she would be in breach of it by taking the role, and so had to knock the new job back.”

Commercial and employment lawyer Jacob Carswell-Doherty of Sydney legal firm Foulsham & Geddes says non-competition clauses are designed to be broad. “This inevitably can lead to confusion, but to ignore it is a big risk to take,” he says.

“This is something we find comes up a bit in accounting because the skills are so transferable. If there’s a non-competition clause in your contract, then you need to know what the terms are and how they apply to you, no matter if you have been made redundant or moved on by your own choice.”

“If there’s a non-competition clause in your contract, then you need to know what the terms are and how they apply to you.”

Why you should follow the rules

It’s a point echoed by accounting recruitment specialist Chris Gordon of the Profusion Group.

“This is a pretty common situation currently [with accountants] due to COVID and the unemployment/redundancy rates,” Gordon says. “Most businesses would take a very commercial approach to such occurrences.”

Professor Rahat Munir, who heads the department of accounting and corporate governance at Macquarie Business School in Sydney, says he has recently been approached for advice by former students who, after being made redundant by their accounting firms, have been offered employment by a client.

There are professional rules a CA must follow in such a situation, he says. Munir suggests initially consulting with a professional body such as Chartered Accountants Australia and New Zealand for guidance on the scope of the original contract and the extent of the rules that apply.

“This is a time to get good advice so you can move forward with your career, but it’s also a time to be upfront and honest with your former employer, and attempt to negotiate a solution that suits you both,” he says.

“It’s also a time to be upfront and honest with your former employer, and attempt to negotiate a solution that suits you both.”

“Keep the communication channels open and be prepared to compromise to work for an outcome that you’re both good with.”

Munir says it’s never wise to assume that just because one person was granted a competition clause clearance to work with a former client that the same applies to everyone.

“You might not know the extent of the factors regarding information in those cases, that can complicate things,” he says.

“And don’t take the job and think no-one will ever find out. We are in a small playing field and word almost always gets back – and that is when a matter like this can really damage your reputation, both with your old employers and new ones, too.”

It may end well

Once the dust settles, having a CA swapping sides to work with a client can actually prove to be a significant positive, especially due to the existing network of relationships the CA already has in place with the former employer.

“Most businesses would most likely recognise two important factors in this scenario,” Profusion Group’s Gordon says. “Firstly, everyone needs to make a living, and secondly, it’s reasonably likely a former employee will be attractive to an existing client.

“With any luck, if a [practice’s] former employee does end up at an existing client, they will be supportive of the existing business relationship and later become a loyal client to their former employers,” he says.

And if not, perhaps it isn’t meant to be. Says employment lawyer Carswell-Doherty: “My advice to people is good communication as early as possible. This is a time to act in good faith, as the employer could well have legitimate business interests they are protecting, which is why the clause might be so important.

“In my view, it is better to know if the non-compete will be enforced before you accept that new job. It’s a big misconception to think a non-competition clause is not worth the paper it is written on... Each case is different, but you have to assume it will be legally binding.”

“It’s a big misconception to think a non-competition clause is not worth the paper it is written on.”