Government proposes a statutory limit of 3 months on non-compete restrictions in employment contracts

8 June 2023

In response to the consultation on measures to reform post-termination restrictions in employment contracts, the government has committed to introducing a statutory limit of 3 months for non-compete clauses.

The government has responded to the consultation, which was published in 2020, on reform of non-compete clauses in employment contracts to confirm the following:

  • Mandatory compensation for the duration of post-termination non-compete clauses will not be introduced. Overall, it was felt that this could result in longer non-compete clauses and larger businesses who were more able to afford to compensate employees during this period would gain an advantage over smaller businesses.
  • Employers will not be prevented from unilaterally waiving a non-compete clause. It was acknowledged that whether a non-compete clause is necessary to protect a legitimate business interest may change during employment.
  • There will be no ban on the use of non-compete clauses. It was concluded that this could result in a loss of investor confidence and prevent employers from investing in training for staff.
  • A statutory limit of 3 months will be introduced for non-compete clauses in both employment and worker contracts. The government considered that this will maintain flexibility for employers to continue using these restrictions without putting barriers on recruitment of staff. The 3-month cap will only apply only to non-compete clauses and not to other post-termination restrictions such as non-dealing or non-solicitation of clients or customers or non-poaching of staff. The cap will not apply to partnership, LLP or shareholder agreements.
  • The government will publish guidance on non-compete clauses, with the aim to increase transparency about the effect of these clauses and the law underpinning them.

The government says that legislation will be introduced "when parliamentary time allows" so it remains unclear when it is likely to come into force.

With the average duration of a non-compete clause being 6 months, it is likely this change will have a significant impact. Ahead of the changes being introduced, employers should consider whether there is a need to protect their business interests in another way, for example through longer notice periods, garden leave clauses and other restrictive covenants.

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