Non-compete restrictions to be limited to three months

Non-compete restrictions to be limited to three months

The Government has announced its intention to bring in legislation which will limit the length of non-compete clauses in employment contracts to three months. The legislation will be brought in “when Parliamentary time allows”, suggesting the change may not be imminent. Detail is limited and it is unclear, for example, whether the limit will apply to all non-compete clauses, or only those entered into after the legislation is in force and whether longer provisions will be considered void, or only enforceable for three months.

What does this mean for employers?

The Government has confirmed that the legislation will not affect an employer’s ability to use paid notice periods or garden leave, so employers will still potentially be able to prevent an employee working for a competitor for longer than three months by, for example, putting the employee on garden leave during the notice period.

The Government has also confirmed that the changes will not affect non-solicitation restrictions (which prevent an employee soliciting their former employer’s clients and customers) and these will therefore still be able to last for longer than three months, subject to the usual rules on enforceability. The Government has not said whether the proposals will affect contractual restrictions preventing an employee dealing with their former employer’s customers and clients.

Post-termination restrictions in employment contracts are only enforceable if they go no further than reasonably necessary to protect an employer’s legitimate business interests, such as trade secrets and confidential information or customer connection. In 2020, the Government consulted on reforming the law in relation to post-termination non-compete provisions. It considered two options:

· Requiring an employer to pay compensation to the former employee for the period of the non-compete, and perhaps putting a statutory limit on the length of the restriction, or

· Making non-compete provisions void and unenforceable.

Although the Government has yet to respond to that consultation the current proposal is more limited as it only imposes a statutory cap on the length of the non-compete restriction. The announcement came in the Government’s Smarter Regulation to Grow the Economy policy paper which also sets out plans to make changes to TUPE consultation laws, holiday pay and working time record-keeping obligations.

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