- 19 May 2023
- 2 min read
Employment Alert – Government announces change to non-compete clauses
Government announces change to non-compete clauses
The Government has announced its intention to place a statutory limit of three months on post-employment non-compete clauses in employee and worker contracts only.
Why is this Important?
Non-compete clauses are a type of restrictive covenant. They restrict an individual’s ability to work for, or set up, a competing business for a period of time after their employment ends.
In order for a restrictive covenant to be enforceable, principles under current case law require that they go no further than necessary to protect a legitimate business interest. In practice this means that they need to be time limited, but there is currently no fixed limit on how long an employee can be restricted for.
Once the statutory limit comes into force, any non-compete clause which seeks to restrict an employee from joining a competitor or starting a competing business for more than three months will be unenforceable. This change will only apply to non-compete clauses; so employers will still be able to place longer restrictions on their workers in other respects, for example from soliciting customers or poaching senior employees (subject to the usual principles under case law). Further, there will be no impact on confidentiality obligations, the length of notice periods or the ability to place employees on garden leave.
What should you do?
There is currently no indication of when the legislation will come into force. The Government has simply confirmed that it will be introduced ‘when parliamentary time allows’. Until that point, you are still able to include non-compete restrictions which last longer than three months.
However, you should prepare for the possibility that the legislation will be applied retrospectively. So, existing non-compete clauses which last longer than three months could either be held to be unenforceable in their entirety or will simply be limited to a three-month period in practice.
In anticipation of the changes coming into force, you should consider limiting the period of non-compete clauses to three months or less (as applicable) and review other restrictions within your employment and worker contracts to ensure they provide the business with sufficient protection.
If you need assistance with reviewing your restrictive covenants, please please call us on 0800 2800 421 or contact us here. We will let you know when the changes come into effect.