The Government plans to prune restrictions around non-compete clauses when employees leave to join a competitor or set up a rival business, according to a policy paper just published. The changes set out in the policy paper are described as being intended to boost the UK economy by improving flexibility in the workplace and the opportunity to recruit talent.
There are several Proposals in the Smarter Regulation To Grow The Economy policy paper which include limiting the length of non-compete clauses to a maximum of three months. Typically, such clauses are drafted to limit employees from acting for up to six to 12 months.
The use of non-compete clauses sometimes referred to as post termination covenants in employment contracts are designed to protect business interests and may restrict a leaving employee from working for a similar business, or setting up a competing business, within a defined geographical radius and for a defined time.
Non-compete clauses may also be framed to prevent a leaving employee from soliciting or dealing with clients or poaching colleagues within a defined period, but the proposed reforms do not extend to such clauses. Nor do they include so-called ‘gardening leave’ which is used to keep an employee out of the market by keeping them on the payroll but requiring them to stay out of the workplace.
The three-month cap will apply to contracts of employment and worker contracts in England, Wales, and Scotland, but not to partnership or shareholder agreements, where power dynamics are likely to be more balanced. However, it is not clear the effect this will have on existing post termination covenants which are a likely to continue to be enforceable as UK law does not have a retrospective effect.
The government has held back with its pruning shears when it comes to other typical protections for employers, such as gardening leave, and while there is no time frame for when the legislation may be drafted and be put on the parliamentary agenda, employers might benefit from planting the seeds that will protect against future changes now. That could include evaluating existing contracts with post termination covenants and confidentiality clauses and those restricting employees from poaching clients if they leave and tightening up where necessary.
Also, to keep things in perspective, it’s worth remembering that very lengthy non-competes are rarely upheld, and as an employer you are both poacher and gamekeeper: protecting the business when staff move on is essential, but you may also have greater opportunity to recruit.
The view is that competitive labour markets can play a crucial role in increasing competitiveness and economic growth, as is reflected in other countries. The New York State Assembly approved a bill (June 2023) that bans workplace non-compete agreements, joining other US states such as California, Oklahoma, and North Dakota. Other proposals in the Policy Paper cover changes to reduce the need for employee representatives during a redundancy consultation, reduce the amount of reporting on Working Time Regulations, and to simplify employment regulations when a business transfers to a new owner under the TUPE provisions.
Employers also need to be aware of the impact of shorter non-compete clauses on possible enforcement action, as the window for taking legal proceedings will be even tighter. Adding a clause to an employee’s existing contracts, which requires the employee to share information about approaches made from a competitor must be made at the earliest opportunity, is an option to consider.
Generally, it’s good practice to keep a close ear to the ground, and to have procedures to monitor for any unexpected activity in data collection by employees, or other relevant triggers to safeguard the employers confidential data, and that’s important whatever the future for non-competes may be.
If you would like to discuss anything in this article or are looking for advice either as Employee or an Employer, please get in contact with our Employment team on 01603 677077 or email info@spiresolicitors.co.uk.
