The beginning of the end for non-compete clauses?
The Government has launched a consultation on measures to reform post-termination non-compete clauses in contracts of employment: measures to reform post-termination non-compete clauses in contracts of employment
These are clauses which typically prevent an employee from working for a competitor for a period of time following the termination of their employment.
The Government undertook a similar consultation process back in 2016 and it appeared to have been kicked into the long grass and as such, it does come as somewhat as a surprise for the Government to have resurrected this issue. The latest consultation appears to have been motivated by Coronavirus with the latest consultation providing:
“… Covid-19 has had a profound impact on the labour market and the Government is looking at measures to unleash innovation, create the conditions for new jobs and increase competition”.
The Government is considering two options:
- A requirement that to be enforceable, the employer would have to pay their ex-employee compensation for the period of the non-compete. This would be supported by other complimentary measures such as enhancing transparency where non-compete clauses are used, and to place statutory limits on the length of the non-compete clauses; or
- A complete ban on the use of non-compete clauses. The Government reference the ban on non-compete clauses in California and that this may have played a part in making it home to some of the world’s most innovative organisations and tech clusters.
I would be surprised if we see a complete ban on the non-use of non-competes with the compensation route likely to be the more attractive option. It is also worth noting that the consultation is also looking at whether the restriction on the use of non-competes should also be extended to agreements that go beyond employment contacts e.g. in LLP agreements, consultancy agreements and share option agreements.
Consultation closes on 26 February 2021 and this is definitely one to watch as we go into 2021.
If you have any queries about non-compete clauses or how the prosed changes could impact on your business please contact Matt Jenkin.