Insights

Nighat Sahi

Published 7 June 2023
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Proposals to Limit Non-Compete Clauses

If you read my recent update in respect of the post-Brexit changes planned for some areas of employment law, you’ll know that the Government has announced its intention to limit the duration of non-compete clauses to three months.

A recap of the challenges of non-compete clauses

Typically, non-compete clauses prevent employees from working for a competitor, starting a competing business, or soliciting customers or other employees within a certain period after leaving their employer. You may find non-compete clauses in an employment contract or in a settlement agreement. The most common period is a six-month restriction.

However, such clauses can be contentious and need to be carefully drafted in order to be enforceable. If they’re too broad in scope or unnecessary for the business interests, they won’t be unenforceable. A non-compete clause is likely to be considered unreasonable if it is for longer than six months, applies to jobs that don’t compete with the employer’s operations or applies to an area where an employer doesn’t operate. However, each case will be assessed on its own merits. 

The reason behind the proposed changes

According to the recent announcement, the Government plans to limit the duration of non-compete clauses to 3 months. The stated rationale behind this move is that it will allow up to 5 million UK workers to change jobs or start a business, etc. The plans are thereby intended to improve the competitiveness of the UK’s employment market. All, of course, aimed at helping to grow the economy.

Concerns about the changes

However, importantly, the announcement did not include any changes to the ability of employers to use paid notice periods (garden leave) or to use non-solicitation clauses. Apart from the potential damage to employers who lose key employees to competitors as a result of shorter non-compete clauses, there are also concerns that employers will simply introduce longer notice periods/garden leave and non-solicitation clauses thereby restricting the labour market rather than encouraging growth.

There is also some ambiguity about whether the existing contracts of employment containing longer non-compete clauses will need to be updated or whether the changes will only apply to contracts entered into after the date that the legislation is introduced. With thousands of non-compete clauses currently in existence, the exercise of updating them all could in fact impose a huge burden on employers both financially and administratively.  

The Government has promised further guidance and there is, as yet, no timetable for implementation. Therefore, as always, it’s a case of watch this space for further developments. Or get in touch if you’d like to discuss a non-compete clause and the implications for you.

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