Paul Fursman
Employment Advice
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.
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.
Esther Marshall, specialist in employment law at Mullis & Peake LLP Solicitors, said:
“The government has held back with its pruning shears when it comes to other typical protections for employers, such as gardening leave and while there is no time frame for when the legislation may be drafted and on the parliamentary agenda, employers might benefit from planting the seeds that will protect against future changes. That could include evaluating existing confidentiality clauses and those restricting employees from poaching clients if they leave, and tightening up where necessary.
“Also, to keep things in perspective, it’s worth remembering that very lengthy non-competes are rarely upheld, and as an employer you are both poacher and gamekeeper: protecting the business when staff move on is essential, but you may also have greater opportunity to recruit.
“Employers also need to be aware of the impact of shorter non-competes on possible enforcement action, as the window for proceedings will be tight. Adding a clause to existing contracts, requiring employees to share information at the earliest opportunity, is an option to consider.
“Generally, it’s good practice to keep a close ear to the ground, and to have procedures to monitor for any unexpected activity in data collection by employees, or other relevant triggers, and that’s important whatever the future for non-competes may be.
“I am often approached by employers who wish to enforce non-compete clauses against employees who have left the business. The key question is whether those clauses would be enforceable. Factors such as the seniority of the employee, the length and reach of the restriction, and whether the clause is legitimately required to protect a business interest. These questions are often decided on a case-by-case basis. The proposed changes, if implemented, may bring some much needed clarity to this area of law.”