Legal News | 14.11.23
Non-compete clauses and the new three-month limit
As part of the ‘Smarter regulation to grow the economy’ policy paper, the UK government proposes to cap the length of non-compete clauses in employment contracts to three months. Currently, non-compete clauses can be lengthy, and in exceptional cases go beyond 12 months.
The UK government’s stated objective is to encourage economic growth and boost competition in the UK markets. The proposed change to the law on post-termination restrictions is intended to make it easier for employees to move between businesses.
What are restrictive covenants?
Restrictive covenants are normally contained in employment contracts, and as the name suggests, restrict and/or limit the actions of former employees once they leave their current employer.
Although the term “restrictive covenant” is extremely broad and can virtually relate to anything, the contractual provisions most commonly concern non-disclosure, non-solicitation, non-dealing, non-competition, and non-poaching clauses. The proposed reforms only relate to non-compete clauses and do not extend to any other type of restriction.
It is important to note that the enforceability of post-termination restrictions requires adherence to key principles in English employment law, including, that they must be reasonable, designed to protect the business’s legitimate interests, be clear and specific and not unreasonably restrain trade.
When are the changes coming into force?
The relevant legislation to introduce the statutory limit is yet to be brought before parliament for review, which will be, in the UK government’s own words, ‘when Parliamentary time allows’. It remains to be seen when and whether this motion will in fact be pursued.
What impact could the change have on employers?
As it stands today the answer is not entirely clear. The proposal does not address the intended impact on existing non-compete clauses which exceed three months. Will these restrictions be void, or will employers be able to enforce the restriction up to the cap?
The UK government’s proposal only aims to tackle non-compete provisions designed to promote the domestic market’s competitiveness and boost the UK economy. Subsequently, employers would still possess a wide range of restrictive covenants, such as non-solicitation and non-poaching clauses, and must make use of an array of different resources already available to them in order to protect both their business and own interests.
It is important to note that the statutory cap is only proposed to apply to employment contracts and no other workplace agreements, such as partnership agreements or shareholder agreements.
In conclusion, there are still plenty of unanswered questions, and until further information is made public, they are likely to stay that way. One thing is certain though – regardless of how this plan will be put into action, it will be controversial and will completely reform the current approach employers take. We will be keeping a close eye on developments and will publish updates in the future.