By Amy Drake, Solicitor – Healys Employment
Non-competition clauses are often found in employment contracts and are known as restrictive covenants. A non-competition restriction prevents an employee from working for a competitor for a certain time period
The Government has launched a consultation on reforming the law as relates to post-termination non-competition clauses in employment contracts. This is not the first time that the Government has explored this and in 2016 there were concerns that non-competition clauses repressed innovation and left entrepreneurs unable to start new businesses in the UK or restricted their ability to do so. In 2016, it was decided that there will be no changes as the framework provided a fair balance to both employers and employees. To support economic recovery from the impact of COVID-19, the Government is re-visiting this.
The consultation paper focuses on two man proposals for reform. These are either:
- To make “post-termination restrictions, non-competition clauses in contracts of employment enforceable only when the employer providers compensation for the period the clause prohibits the individual from working for a competitor or starting their own business”. This change is likely to encourage employers to take more care when considering restrictions, rather than using a standard approach to all matters. It is likely to make employers think about whether non-competition restrictions are genuinely needed and if so, for how long. The consultation paper indicates that the Government could impose a limitation on the duration of non-competition clauses of up to 12 months.
- To make “all post-termination, non- competition clauses in contracts of employment unenforceable”. This option would mean that non-competition clauses could not be included in employment contracts at all, and therefore employers will need to rely on other rights to protect their legitimate business interests, such as confidential information clauses.
This could be a significant impact for employers and they should consider whether they want to participate in the consultation. If it is decided that there is a ban on non-competition clauses, this may challenge a number of businesses on how they operate going forwards. In any event, employers should take care when using these sort of restrictions in employment contracts, and these should be drafted and tailored to the business and the seniority of the employee. The restrictions should be reviewed at regular intervals, taking into account changing circumstances, such as promotions and may need to be amended with the employee’s written consent.
The consultation closes on 26 February 2021 at 11.45pm, and it will be interesting to see what the outcome is.
Healys Employment solicitors can advise and assist you on any employment law matters. If you require any further information, please don’t hesitate to contact Healys Employment team.