Consultation on non-compete clauses

In 2023, the Government reviewed post-termination non-compete clauses, and this review recommended that non-compete clauses should be limited to a three-month duration.

The proposals went no further at the time due to the election; however, Labour have resurrected the proposals and published a consultation paper setting out options for restricting these clauses by:

• Limiting their length.
• Limiting them by company size – permitted for smaller companies only.
• Banning them altogether (similar to California).
• Allowing them only for higher-paid employees (those more likely to hold highly sensitive confidential information).
• Combining a ban below a salary threshold with a statutory limit of three months’ duration.

The government believes that limiting covenants will boost the labour market by allowing workers to move jobs more easily or start up their own businesses.

The consultation paper does, however, recognise that businesses need to protect their confidential information, and that is why the paper sets out different options for consideration.

The consultation is at an early stage, but what seems likely is that:

• The fact that the current government is furthering this issue (left over from the previous government) means there is some traction to make a change.
• There will be a restriction on the length of non-compete provisions to three or six months, and they will likely be permitted for senior staff only.
• There is no timescale for this change.
• Any change will affect ‘non-competes’ only and will not extend to non-solicitation or non-dealing clauses.
• Even where permitted, restrictive covenants will only be enforceable to the extent they are reasonable and protect a legitimate business interest of the employer.

Due to the difficulties in enforcing non-competes, the strongest protection for a company is garden leave, where the departing employee remains employed but restricted.

Robust confidentiality clauses are also key, ideally ones that specifically refer to the confidential information the individual has and relates to the company’s business.

Proposed changes to non-compete clauses could affect how you protect confidential information and senior talent. Contact us to review your current contract.