UK: Non-Compete Clauses in Employment Contracts

Authors: Frances Ross, Corinna Harris, and Charlotte Stern 

The UK Government has launched a review of non-compete clauses, suggesting reform and seeking employer views.

Non-compete clauses are probably familiar to you: around 5 million employees in the UK are working under a contract which includes one.  Usually lasting around 3-6 months, they are only valid if the employer can demonstrate that the non-compete clause is reasonably necessary to protect a legitimate business interest.  There has been growing concern that they are over-used to unreasonably restrict employees from moving into a new role. The government has just launched a Working Paper putting forward options and seeking views on reform of non-compete clauses in employment contracts.

The Working Paper notes that challenging non-compete clauses is only possible by bringing a claim, which is often prohibitively expensive. As a result, employers face few limits on including such clauses and workers often comply out of fear of legal consequences.

The government’s paper states that non-compete clauses are known to limit worker mobility, act as a barrier to recruitment and inhibit competition and innovation, so they are seeking views on matters including:

• introducing statutory limits on the length of non-compete clauses
• banning non-compete clauses in employment contracts (acknowledging that employers would strengthen their non-deal clauses)
• banning non-compete clauses below a salary threshold – the government thinks international examples show that this can work but can be difficult administratively
• combining a ban below a salary threshold with a statutory limit of 3 months

Key Action Points for Human Resources and In-house Counsel:

The results of the Working Paper will be non-binding, so it’s not clear whether or when the government will take any action on non-compete clauses.  In the meantime, employers should review their restrictive covenants and take advice to ensure that the clauses are appropriate and genuinely required for each category of employee to which they are applied.

Working paper on options for reform of non-compete clauses in employment contracts – GOV.UK