In a recent development to the UK employment law landscape, the Government unveiled plans on 10 May 2023 to amend the duration of non-compete clauses to a maximum of three months. This move, whilst not currently law, is set to change some aspects of post-termination restrictions in employment contracts and support the broader business sector with access to a wider talent pool. This blog explores what these changes entail and their potential implications for employers and employees.
Non-compete clauses, traditionally embedded in employment contracts as a post-termination restriction, deter employees from joining or establishing a competing business following the termination of their employment. These clauses provide a safeguard for the employer’s legitimate business interests, including the protection of confidential information and customer/client connections. The length of these clauses has been largely at the employer’s discretion, typically ranging from 6 to 12 months (depending on the employee’s role and seniority within the business), subject to them going no further than necessary to protect the employer’s legitimate business interests.
However, this is set to change with the proposed statutory reforms. The three-month cap on non-compete clauses is anticipated to impact nearly five million UK workers who currently have non-compete restrictions in their contracts of employment. This move is geared towards providing these individuals with enhanced flexibility to switch jobs without onerous non-compete provisions and apply their skills elsewhere, potentially facilitating career growth.
While the legislation’s exact implementation date remains uncertain, the potential impact is already drawing significant attention from employers and employees alike. For employers, the proposed changes could mean a shift in focus from non-compete clauses to other forms of restrictions.
This could include longer notice periods or implementing garden leave clauses to keep senior executives out of the industry for longer than three months, without having to rely on non-compete restrictions. Employers may also review other restrictions such as those that prevent an employee from soliciting or dealing with previous customers, clients or employees after leaving.
Employers may also place an emphasis on effective confidentiality clauses within employment contracts. These clauses, aimed at preventing an employee from using confidential information for the benefit of any new employer, are likely to come under the spotlight. Coupled with this, employers may also need to consider measures regarding information access and downloads, to monitor and prevent the potential outflow of confidential information.
Notably, the proposed changes apply only to employment and worker contracts and not to non-competes clauses in partnership/LLP agreements, sale and purchase agreements, or shareholder agreements. It remains unclear how the new legislation will affect existing non-competes clauses that exceed three months, leaving room for further discussion and clarification.
However, it is thought that any non-complete clauses currently longer than 3 months would be enforceable for any longer than a 3-month period. It is worth noting that employers still need to ensure that the non-compete clause is proportionate and necessary. Employers cannot assume that existing 3-month clauses are automatically enforceable and will need to demonstrate their business need if they seek to enforce it.
As these proposed changes loom on the horizon, businesses may need to revisit their current post-termination protections in employee contracts and assess how to best safeguard their interests. Updating employment contracts in accordance with the new regulations will also become a key priority whilst also ensuring that any contractual changes are completed in accordance with current legislation. Employers should also consider providing additional payment such as pay rises/benefits in consideration when amending an employee’s contract to ensure the validity of the clauses. On the flip side, employees stand to benefit from the increased job mobility and potential growth opportunities that these changes could usher in.
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