Government consultation on non-compete clauses

On 4 December 2020 the government launched a consultation on the reform of non-compete post-termination restrictions, which are the clauses that seek to prevent employees from working for a competitor or setting up in competition for a period of time after they leave employment. The stated purpose of the reform is to allow for economic recovery following the effects of the Covid-19 pandemic, by boosting innovation and increasing job competition.

The consultation is open until 26 February 2021. Individuals or companies can access the consultation paper here for full details of the proposals and how to respond.

The consultation proposes:

Mandatory compensation during the restricted period 

This is currently adopted in France, Germany and Italy. The intention is that this will disincentivise companies from including non-competes as standard practice and reduce the misuse of such clauses. The government is also consulting on the level of compensation which would be paid, proposing between 60% to 100% of the employee’s average weekly earnings.

A legal restriction on the length of non-compete restrictions

The government is also mooting a statutory restrictions on the period of a non-compete clause, either for a period of 3, 6 or 12 months. The usual maximum period is 12 months for senior employees, but a statutory maximum would take this decision away from judges and create more certainty on enforceability. A disadvantage of this approach is that employers could then opt for the maximum period as standard without due consideration to the reasonableness of the period.

A complete ban on the use of non-compete restrictions

This is the most controversial of the proposals, and likely to be resisted by any industries which place a premium on protecting their confidential information, intellectual property and customer relationships.

This article was co-written by Louise Attrup, employment partner and Jenny Dodds, employment legal assistant.