Government consultation on reform of non-compete clauses in employment contracts: an update (of sorts)

In December 2020, the government launched its consultation on measures to reform post-termination non-compete clauses in contracts of employment. The two main options set out in the consultation paper were as follows:

• Option 1 – making post-termination non-compete clauses in employment contracts permissible only where the employer provides compensation (most likely a percentage of basic salary) for the period during which the individual will be prohibited from working for a competitor or starting their own competing business.

• Option 2 – making all post-termination non-compete clauses in contracts of employment void and unenforceable.
  The consultation closed on 26 February 2021, but there has been little by way of update on when the response will be published.

Where are we now?

We do at least know that a response is still in progress thanks to a question answered by Paul Scully MP on 2 March 2022. In response to a question by his colleague Kate Griffiths MP, Mr Scully stated:

“The Government is in the process of analysing responses to the consultation and the available data, which will help inform decisions on detailed policy questions. Any decisions to progress with reforms to non-compete clauses require consideration of the benefits and risks before implementation and we are not able to provide further comment on future plans at this stage. A response to the consultation will be published on the GOV.UK website in due course.”

A month on, we made our own enquiries of Department for Business, Energy & Industrial Strategy about whether there is any further update. We received a response in similar terms.

Should employers still rely on non-competes?

For now, non-compete clauses remain a tool at the disposal of employers in the UK, and if they are used fairly and appropriately, can still be used to protect their businesses. This was illustrated by the recent case of Law by Design v Ali in which the court upheld a 12-month non-compete in an employment contract, when a similar provision in a shareholder agreement was ruled too wide and unenforceable.

Global approaches to non-compete clauses vary, with some countries requiring payment for non competes. Unless and until the government legislates otherwise, however, payment is not legally required in the UK.

Many employers are finding recruitment and retention challenging at the moment. Non-compete clauses are a tool that can be used to limit the adverse impact of employees leaving, or even be a factor in encouraging employees to stay. Equally, however, when recruiting new people you need to be careful not to turn a blind eye to the existence of non-competes in place with their previous employer. For more steps you can take to protect your business as recruitment and retention become more challenging, see our earlier article on protecting your business where employees are in short supply.