Breaking the chains: The future of non-compete clauses
The government has published a working paper seeking views on reform of non-compete clauses in employment contracts.
This reform is significant given that an estimated five million workers are currently subject to non-compete restrictions. The government views this reform as an opportunity to support entrepreneurs and reduce barriers to economic growth.
Four reform options under consideration
The working paper considers four principal options for reforming non-compete clauses: a three-month statutory limit on all non-competes; a statutory limit determined by company size; a blanket ban on non-competes entirely; or banning non-competes below a specified salary threshold. Each option presents distinct advantages and challenges.
Three-month statutory cap
A three-month statutory cap would provide certainty whilst balancing employer protection of legitimate business interests against employee mobility.
Company size-based limits
A company size-based approach recognises that smaller businesses may have different needs, though this could create complexity in enforcement.
Complete ban on non-competes
A blanket ban, similar to California's approach, would maximise labour mobility and innovation but may inadequately protect confidential information and client relationships.
Salary threshold
The salary threshold option targets protection for lower-paid workers whilst preserving restrictions for senior employees with access to sensitive commercial information.
Implications for employers
The reform represents a fundamental shift in employment law policy. Pending any changes being brought into effect, employers may wish to review existing restrictive covenants and consider whether alternative protections (confidentiality clauses, garden leave provisions) adequately safeguard legitimate interests.
The final legislative approach will significantly impact recruitment strategies, employee retention, and commercial protection mechanisms across all sectors.
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