Employment non-competes look set to shrink

The Government plans to prune restrictions around non-compete clauses when employees leave to join a competitor or set up a rival business, according to a policy paper just published.

Proposals in the smarter regulation to grow the economy policy paper include limiting the length of non-compete clauses to a maximum of three months.  Typically, such clauses are drafted to limit employees from acting for up to six to 12 months.

The use of non-compete clauses in employment contracts is designed to protect business interests and may restrict a leaving employee from working for a similar business, or setting up a competing business, within a defined geographical radius and for a defined time.

Non-compete clauses may also be framed to prevent a leaving employee from soliciting or dealing with clients or poaching colleagues within a defined period, but the proposed reforms do not extend to such clauses. Nor do they include so-called ‘gardening leave’ which is used to keep an employee out of the market by keeping them on the payroll but requiring them to stay out of the workplace.

The three-month cap will apply to contracts of employment and worker contracts in England, Wales and Scotland, but not to partnership or shareholder agreements, where power dynamics are likely to be more balanced.

The changes set out in the policy paper are described as being intended to boost the UK economy by improving flexibility in the workplace and the opportunity to recruit talent.  Other proposals cover changes to cut the amount of reporting on Working Time Regulations, and to simplify employment regulations when a business transfers to a new owner.

The view that competitive labour markets can play a crucial role in increasing competitiveness and economic growth, is reflected in other countries.  The New York State Assembly has just approved a bill (June 2023) that bans workplace non-compete agreements, joining other US states such as California, Oklahoma, and North Dakota.