Non Compete Restrictive Covenants
New legislation is intended to curb Non Compete Restrictive Covenants
The UK Government consulted on reform to post-termination Non Compete Restrictive Covenants in contracts of employment between December 2020 and February 2021. No formal response to the consultation has been published but a policy paper was published in May 2023 announcing the UK Government’s intention to legislate to limit the length of non-compete clauses to three months.
Background To Non Compete Restrictive Covenants
A Non Compete Restrictive Covenants prevents an employee from engaging, for a specific period of time after termination of their employment, in any business that competes with the ex-employer’s business.
At present, the UK has no statutory restrictions on non-compete provisions and, under case law, non-competes are enforceable provided they are reasonably necessary to protect a legitimate interest. However, restrictions beyond 12 months are often unenforceable.
Current Discussion Around Non Compete Restrictive Covenants
The UK Government is proposing to implement legislation to limit the duration of post-termination non-compete provisions in employment contracts to three months.
The policy paper explains that this limitation applies only to post-termination non-compete clauses. It will not interfere with an employer’s ability to use (paid) notice periods or gardening leave, nor will it impact on confidentiality clauses. Non-solicitation clauses that restrict employees from approaching their former employer’s customers, clients or suppliers will also be unaffected. The policy paper does not specifically address non-dealing clauses – these differ from non-solicitation clauses in as much as they restrict the employee from carrying on business with their former employer’s customers, clients or suppliers irrespective of who contacted whom – but it is thought that these will also be unaffected. Restrictions under the public sector Business Appointment Rules (that exist to prevent former civil servants and ministers from profiting from their knowledge of and contracts within Whitehall) will also be unaffected.
The Government also considered imposing a complete ban on non-compete provisions but recognised that non-competes can “act as a mechanism to align incentives between workers and employers and enable investments.”
For now, be aware of the ongoing debate and bear in mind that in the future non-compete provisions in employment contracts could be limited to three months and extended non-compete provisions may therefore become illegal.
Employee Handbook Compliance Package