Government Reforms – May 2023: Non-Compete Clauses To Be Limited To 3 Months Post Termination
Several Government reforms have been announced as part of wider employment law measures to ‘improve regulation following our departure from the EU’, whilst maintaining UK labour standards. Details of the proposed reforms can be found in the policy paper “Smarter Regulation to Grow the Economy”, published on 10 May 2023 by the Department for Business and Trade.
The Government has announced that it intends to introduce legislation to limit the length of non-compete clauses to three months post-termination in employment contracts.
Non-compete clauses are intended to restrict an individual’s ability to work for, or establish, a competing business after they have moved on from a job. Non-compete clauses can play an important role in protecting a business, but they are often unnecessarily burdensome for the individual. The Government’s plan to limit the length of non-compete clauses intends to provide employees with more flexibility and greater freedom to switch jobs, apply their skills elsewhere and search for higher-earning roles. The intention is to boost the wider UK economy by supporting employers to grow their businesses; and increase productivity by widening the talent pool and improving the overall quality of candidates.
The policy paper makes clear that limiting non-compete clauses will not interfere with the ability of employers to use (paid) notice periods, garden leave or non-solicitation clauses. Additionally, the reform will not affect confidentiality clauses or restrictions on public sector employees that are subject to the business appointment rules.
Notwithstanding that, it is currently unclear if the proposals will apply to non-compete clauses in other types of contracts such as consultancy agreements, limited liability partnerships and partnership agreements. It is also unclear how the change in the law will affect existing non-compete clauses that are longer than 3 months:
- will existing non-compete clauses that are longer than 3 months be void entirely; or
- will they only be enforceable for up to 3 months post termination once the new law comes into place?
The policy paper also does not clarify how this proposal will interplay with the current case law on reasonableness and proportionality of non-compete clauses.
The proposed limitation to non-compete clauses is subject to consultation and there is currently no time scale for this change to become effective. The Government has stated that it intends to legislate “when parliamentary time allows”. So, whilst it appears that there is a plan in place for reform, there is a lot of detail yet to be provided. Watch this space...
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Please get in touch with Jon Taylor if you need any advice or assistance on post termination restrictions or any other employment related matter.