Government Announces 3-Month Limitation on Non-Compete Clauses
The government has announced plans to limit non-compete clauses – which prevent a departing employee from working for a competitor – to three months only.
Non-compete clauses are a type of restrictive covenant, and these are already limited by the requirements to a) be no wider than necessary, and b) protect an employer’s “legitimate business interest”. If a restrictive covenant is deemed to be too wide, or unnecessary, it may be unenforceable and struck down.
Restrictive covenants have already been in the spotlight; in 2020 the government published a consultation paper exploring options for reforming the law in this area. The concern is that restrictive covenants prevent employees from making a living on leaving their employer and hurt the wider economy by restricting innovation and the talent pool. Previous suggestions for reform have been to force employers to provide compensation for the restricted period or to make all restrictive covenants unenforceable.
In May 2023, the business and trade secretary Kemi Badenoch announced plans to restrict non-compete clauses as part of a wider package of reforms. Suggesting the government is “taking back control of our laws after Brexit”, Ms Badenoch said: “I have listened to the concerns of businesses of all sizes and have made it a priority to tackle the red tape that holds back UK firms, reduces their competitiveness in global markets and hampers their growth”. The government considers that the changes will boost productivity, give employees the freedom to switch roles and earn a pay rise, and improve the quality of candidates employers can hire.
On the other hand, some have argued that reducing the restricted period could damage employers, by allowing key employees to join competitors much sooner – while potentially highly sensitive confidential information, or business relationships with clients, suppliers and employees, remain much more relevant.
In my experience, non-compete clauses are most problematic at the less-senior levels of the workforce. A restriction which prevents someone on £30,000 a year from working for a competitor for six months may, in many cases, prevent that employee from changing jobs. It is conceivable that someone in a niche or geographically limited field would be unable to find any work other than at a competitor, and therefore unable to afford such a lengthy period out of work. In addition, many employers seeking to fill a role cannot wait six months for a non-compete clause to expire which in turn harms employment prospects for the departing employee.
Further, if an employer’s confidential information or business relationships are so key, then it ought to be responsible for protecting it – either by paying employees for a period of garden leave or by simply doing the work to retain their employees. Employers do have common law rights to protection of trade secrets in any event but many employees are not privy to such information and are still constrained.
Certainly, there are important interests to be protected on both sides of the argument. The changes have not come into force, and it remains to be seen what the eventual outcome will be. Watch this space.
This blog was written by Kendal Youngblood, Solicitor at didlaw.