Non-compete clauses are used in contracts of employment to restrict an individual’s ability to work for a competing business, or to establish a competing business for a defined period after the individual leaves the business.
The government have recently launched a consultation paper on reforming the law as relates to post-termination non-competition clauses in employment contracts. This is not the first time that government have explored this and in 2016 there were concerns that non-competition clauses repressed innovation and left entrepreneurs unable to start new businesses in the United Kingdom or restricted their ability to do so. In 2016, it was decided that no change would be forthcoming as the framework was deemed fair for both employers and employees. To support economic recovery from the impact of coronavirus, the government is exploring avenues to boost innovation, create the conditions for new jobs and increase competition.
The Consultation Paper
The Consultation paper focusses on two main proposals for reform:
Firstly, to make “post-termination restrictions, non-competition clauses in contracts of employment enforceable only when the employer provides compensation for the period the clause prohibits the individual from working for a competitor or starting their own business”. This change is likely to encourage employers to take more care when considering restrictions, rather than using a standard approach to all matters. It is likely to make employers think about whether non-competition restrictions are genuinely needed and if so, for how long. The consultation paper indicates that the government could impose a limitation on the duration of non-competition clauses of up to 12 months
Secondly, to make “all post-termination, non-competition clauses in contracts of employment unenforceable”. This option would mean that non-competition clauses could not be included in employment contracts at all and therefore, employers shall need to rely on other rights to protect their legitimate business interests, such as confidential information clauses.
This could be a significant impact for employers and as such, employers should consider partaking in the consultation and providing their opinions on the matter. If it is decided that there is a ban on non-competition clauses, many businesses shall need to consider the impact that will have on their business and how they shall operate going forwards. In any event, employers should take care when using these sort of restrictions in employment contracts and these should be drafted and tailored to the business and its employees. The restrictions should be reviewed regularly, taking into account the changing circumstances, such as promotions and may need to be amended with the employee’s written consent.
The Consultation closed on the 26 February 2021 at 23:45pm. If you desire further information as to how these prospective changes may impact your business, please contact John Szepietowski at Audley Chaucer Solicitors on 01372303444 or email us at email@example.com or visit our Linkedin page.