How to Resolve a Non‑Compete Breach Between Companies

When one company alleges that another has breached a non‑compete covenant, the dispute can threaten business relationships, expose sensitive information and create financial loss. Non‑compete clauses - often part of commercial contracts, sale agreements or supply arrangements - restrict a party's ability to operate in a defined market, territory or sector for a period. In England and Wales, such clauses are governed by common law principles of restraint of trade, and enforcing or resolving a breach requires careful legal and practical steps. This article explains the legal framework, how to respond to a breach, options for resolution, potential court procedures, and common questions businesses face when non‑competes are contested.

What Is a Non‑Compete Clause?

A non‑compete clause - also called a restrictive covenant - is a contractual term that limits a party's ability to compete with another after the contract ends or while it continues. Clauses can arise in various commercial contexts, including business sales, distribution agreements, joint ventures and licensing deals. The key purpose is to protect legitimate business interests, such as:

• Confidential information and trade secrets;
• Customer relationships and goodwill;
• Stability of key strategic assets; and
• Specialised know‑how that gives the business a competitive edge.

However, courts in England and Wales treat non‑competes with caution because they restrain trade and can restrict a company's right to operate freely in the market. A restraint is enforceable only if it is reasonable and necessary to protect a legitimate interest and no wider than required to achieve that purpose.

When a Breach Occurs

A breach of a non‑compete clause typically arises when a party:

• Engages in competitive activity contrary to the clause;
• Solicits clients, customers or staff it was contractually prohibited from approaching;
• Enters a market or territory restricted by the clause; or
• Uses confidential information in ways the agreement was intended to prevent.

The first step in any dispute is to confirm whether the clause is valid and enforceable - not all non‑compete provisions will survive legal scrutiny, especially if they are too broad or go beyond what is reasonably necessary to protect the legitimate interest.

Legal Framework: Restraint of Trade Doctrine

Under the common law restraint of trade doctrine, non‑compete clauses start from a position of being void and unenforceable unless the party seeking enforcement can demonstrate:

1. There is a legitimate business interest to protect; and
2. The extent of the restriction (scope, duration, and geography) is reasonable and no wider than necessary.

The courts will consider the commercial context, bargaining positions, and whether a less restrictive clause would suffice (for example, a non‑solicitation or confidentiality agreement) before upholding a non‑compete clause.

Step‑by‑Step Guide to Resolving a Non‑Compete Breach

1. Review the Contract and Evidence

Before taking action, carefully analyse the contractual wording of the non‑compete clause and surrounding terms. Identify:

• The scope of restricted activities;
• Any geographical limits and time periods;
• Definitions of competitor, market or business activity; and
• Evidence of actual conduct that may breach the clause.

Collect documentation such as emails, public statements, marketing materials, financial records, and witness statements showing the alleged breach.

2. Assess Enforceability

Not every non‑compete clause will hold up in court. Courts scrutinise reasonableness at the time the clause was agreed, and will not enforce restrictions that are wider than necessary to protect a legitimate interest. For example, an overly broad restriction preventing all competition nationwide for several years may be struck down while a narrower restriction protecting specific activities or territories might be upheld.

3. Initiate Informal Resolution

In many cases, disputes can be resolved without litigation:

• Negotiation: Engage the other company to clarify concerns, present evidence of breach, and agree on remedial actions.
• Mediation or ADR: Alternative dispute resolution offers a structured process to negotiate a settlement with a neutral facilitator.
• Written Undertakings: A formal letter outlining the breach and requesting actions to remedy the situation (e.g., ceasing restricted activities) can prompt compliance.

These approaches can be faster and less expensive than litigation.

4. Formal Letter Before Action

If negotiation stalls, a Letter Before Action (LBA) is usually the next step. An LBA should:

• Set out the relevant contractual clause;
• Explain how it has allegedly been breached;
• Provide evidence and legal basis for the claim; and
• Specify corrective measures or compensation sought within a set deadline.

A well‑drafted LBA often induces compliance or facilitates settlement discussions.

5. Court Action and Remedies

If informal methods fail, you may need to pursue court action. Remedies for a non‑compete breach include:

Injunctive Relief

An injunction is a court order that restrains the breaching party from continuing the competitive activity. Injunctions are particularly effective where ongoing or imminent harm cannot be remedied by monetary compensation alone. Courts may grant interim or final injunctions if the claimant shows that:

• There is a serious question to be tried;
• Damages would not be an adequate remedy; and
• The balance of convenience favours an injunction.

Damages

Damages compensate for financial losses directly caused by the breach. Quantifying losses can be complex, and courts often require detailed evidence showing the causal link between the breach and financial harm. Settlement negotiations may centre on estimating such loss without full proceedings.

Account of Profits

In certain cases, the claimant may seek an account of profits, where the court orders the breaching party to surrender profits that directly resulted from the breach.

Specific Performance

Rarely, a court may order specific performance - requiring the party to comply with its obligations under the contract - though this is less common for restraints that affect ongoing conduct.

Practical Considerations Before Litigation

Proportionality and Costs

Litigation can be costly and time consuming. Before issuing proceedings, weigh the likely benefits against potential legal costs. Courts also consider whether the claimant's approach is proportionate to the alleged harm. Constructive negotiation and ADR often demonstrate reasonableness to the court.

Evidence Preservation

If litigation is imminent, preserve all relevant evidence. Avoid deleting emails, altering log files or otherwise disposing of records that may be crucial to proving breach.

Balancing Interests

For the courts, enforcing a non‑compete is not automatic. Judges will balance the claimant's need to protect legitimate business interests against the defendant's right to compete and work freely. A clause that merely aims to suppress competition rather than protect specific interests is unlikely to be enforced.

Competition Law Risks

Be cautious not to enter into anti‑competitive agreements with other businesses (for example, industry‑wide agreements restricting hiring or pricing), as such conduct may breach UK competition law and attract regulatory scrutiny.

Common Questions About Non‑Compete Disputes

How Long Must a Non‑Compete Last?

There is no fixed statutory period, but courts tend to view shorter periods (often 3–12 months) as more reasonable, depending on context and business interests.

Can the Defendant Argue the Clause Was Unreasonable?

Yes. A defendant can challenge a non‑compete clause as unenforceable if it is broader than necessary to protect the claimant's legitimate interests.

What Happens If the Clause Is Unenforceable?

If a court finds the non‑compete unenforceable, it may strike down the clause. In some cases, the court can apply the blue pencil rule to remove unreasonable parts while enforcing the remainder if it can stand alone.

Key Takeaways

Resolving a breach of a non‑compete clause between companies in England and Wales requires understanding both the legal tests for enforceability and practical steps for negotiation, evidence gathering and, if necessary, litigation. Clauses are enforceable only where they protect legitimate commercial interests and are no broader than necessary. Before resorting to litigation, businesses should explore negotiation, written demands and alternative dispute resolution. If formal action is needed, remedies include injunctions, damages and other court orders designed to protect commercial interests while balancing freedom to compete. Clear drafting, proportional enforcement and careful assessment of evidence help achieve effective resolution in non‑compete disputes.