Government Consultation: Reforming non-compete restrictive covenants

Howes Percival LLP

21st January 2021

The Government has recently announced that it is consulting on proposed reforms to non-compete restrictive covenants used in employment contracts.

Such clauses typically prevent employees from taking up employment with another business which competes with their employer or, alternatively, from setting up their own business in competition for a specified period. They are often included in employment contracts for senior employees although increasingly “as standard” in most contracts.

The Government is concerned that widespread use of such clauses restricts innovation and competition, which will negatively impact the economic recovery from the COVID-19 pandemic.

The Government’s consultation therefore seeks views on two main proposals:

Changing the law so non-compete clauses are only enforceable where the employer provides compensation to the employee for the period during which they are restricted. This would be in conjunction with others measures being introduced to improve transparency on the use of non-compete clauses and having specified restrictions on the duration of such clauses; or
Alternatively, making all non-compete restrictive covenants in employment contracts unenforceable. In other words, having an outright ban.
Further details of the consultation can be found here. Responses are welcome from all and should be submitted no later than 26 February 2021.

Matthew Potter, Partner comments:  

With any reform, it will be important that the Government strikes a balance between protecting the rights of employees and their ability to innovate and compete, with the genuine need of a business to protect its legitimate business interests. Whether reforming the use of non-compete restrictive covenants achieves this, particularly given the prevalence of other types of restrictive covenants, remains to be seen.  
If you would like to discuss this issue further including what steps can be taken to enforce existing restrictive covenants, contact a member of the team here

 

 

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