No mention in the King’s speech: a non-starter for non-compete limits?

Non-compete clauses are one type of post-termination restriction (PTR) – also known as “restrictive covenants” – that an employer may seek to include in a contract of employment. Under current law in the UK, there isn’t a fixed maximum duration of non-competes, but the government announced in May that it planned to introduce a limit of three months to any non-compete restriction. Further news on this has been eagerly awaited.

What is the delay?

You could be forgiven for thinking that the government is dragging its feet on its planned reform of non-competes. The government’s consultation on reform was first announced in the policy paper “Smarter Regulation to Grow the Economy” in 2020. The plan to limit them to three months was then confirmed in the long-awaited response to the consultation published in May 2023, some two and a half years later. Our article summarising the outcome of the consultation and its implications can be found here.

To become law, May’s proposed change would have to be enacted by way of primary legislation. We previously commented that there was some uncertainty as to when (or if) the reform would proceed given the government’s comment that it would proceed when “Parliamentary time allows”. Their numerous other legislative priorities and the limited Parliamentary time remaining before the next general election (which must take place no later than January 2025) would inevitably make this a challenge.

The King’s speech earlier this month made no mention of the reform meaning the chances of it making it to the statute book before the next general election are significantly diminished. Whilst there were comments about measures to increase innovation (one of the government’s stated aims of non-compete reform) and make the economy more competitive, these were made solely in the context of seeking to enter free trade agreements with fast growing economies. Non-compete reform is clearly not an immediate priority for this government.

Will it ever come into force?

Whilst the reform didn’t make the King’s speech, the reform may still happen at some point. The government has recently shown a willingness to sponsor Private Members’ Bills to achieve employment law reform on a piecemeal basis. However, it is worth noting by way of comparison that the recent Private Member’s Bill on third party sexual harassment took 16 months from first reading to Royal Assent, which is significantly longer than this Parliament has left.

If the Labour party are successful in winning the next election, enacting a Conservative government’s proposal for non-compete reform is unlikely to be high on the agenda. The Labour Party have a range of its own employment law reforms to push through which we covered in our article series. Non-compete reform does not appear in their current list.

What should employers be doing now?

Many employers had adopted a ‘wait and see’ approach to the news of the planned reform. Much was (and still is) unknown about how the law would operate in practice. Given the now reduced likelihood of the reform becoming law, employers can and should continue to include non-competes in their employment contracts and other contractual documents.

Employers may still wish to take this opportunity to review their employee competition and confidentiality protections to consider whether they are best served by non-compete restrictions in employment contracts. Non-competes within incentive agreements and garden leave provisions were expected to fall outside the ambit of the government’s proposed reforms.

What’s happening in California?

The UK is not alone in reviewing the use of non-competes. The issue has attracted new legislation in California. Generally, Californian courts have held any non-competition and non-solicitation agreements to be void except in narrow circumstances. However, the new legislation further extends this prohibition to out of state non-competes, not just those signed in California. In addition, an Assembly Bill requires employers to affirmatively notify all current and former employees who signed a void non-compete that the clause or agreement is void, by no later than 14 February 2024.

Whether a more restrictive direction of travel is also on the cards for the UK is, for now, uncertain.