No more non-compete clauses?

This month, the BEIS (Department for Business, Energy and Industrial Strategy) opened their consultation on reforming employment contract non-compete clauses. Back in 2016, there was a close to universal consensus amongst employers that restrictive covenants are a valuable instrument for those seeking to protect their business interests. At the same time, their perceived impact on an ex-employee’s ability to find new work was deemed fairly insignificant, or, at the very least, not unfair.

However, due to the ongoing COVID-19 pandemic the Government is looking for ways to assist the unemployed, stimulate competition and create new jobs. Re-assessing the impact of post-termination restrictions will be part of their plan.

The key proposals the BEIS are seeking consultation on, are as follows:

• Hoping to align themselves with principles already in place in Germany and France, whether to make post-termination non-compete clauses enforceable only where the employer provides a level of compensation for the duration of the clause.  It is hoped that this would discourage a blanket use of covenants and limit their application only to where it is strictly necessary.
• A proposed requirement for the employer to disclose and explain the exact terms and restrictions of any non-compete clauses/agreements to the employee, prior to beginning their working relationship. As above, should this obligation not be adhered to, it would make any such provisions unenforceable.

• Introducing statutory limits (three, six or 12 months) on the length of any non-compete clauses. The BEIS does acknowledge that this has the potential to encourage employers to use the maximum length possible, even where not strictly necessary. It is hoped that this will be used in conjunction with a form of compensation for the affected employee, as alluded to above.
• Finally, the government is thinking of prohibiting the use of all post-termination non-compete clauses. It is hoped that this would provide greater certainty for all parties involved, increase labour mobility and encourage individuals to start new businesses.

The consultation closes on 26 February 2021, access the full paper