The government has announced a  new consultation on measures to reform post-termination non-compete clauses (restrictive covenants) in employment contracts.

In 2016, following a ‘call for evidence’ on the use and impact of the restrictions, the Government decided they were a valuable and necessary tool for employers to protect their business interests and so, it was not necessary to take any further action.

The Government is revisiting the use of non-compete clauses, as part of efforts to allow individuals to start new businesses and find work following the COVID-19 pandemic.

Whilst the proposals focus on the use of non-compete clauses, which restrict an individual’s opportunity to work for or establish a competing business, the consultation also considers whether the law needs to address other post-termination provisions such as non-solicitation and non-dealing clauses.

Key proposals set out in the consultation paper are:

  • Mandatory financial compensation

Making post-termination non-compete clauses in employment contracts only enforceable where the employer compensates the employee for the duration of the clause. This is the position in Germany, France and Italy.

It is thought this would discourage the widespread and sometimes inappropriate use of non-compete clauses by employers and limit their use only where necessary for a particular role. It would also likely reduce the volume of litigation around the enforcement of the restrictions. The consultation is seeking views on the appropriate level of compensation, set as a percentage of the ex-employee’s average weekly earnings. It also seeks views on whether employers should have the option of waiving the non-compete clause early.

  • Enhancing transparency and communication

Requiring employers to disclose the terms of a non-compete terms in writing before they enter into the employment relationship. A failure to do so would make the clause unenforceable. It is not clear how the Government intends this to work in practice, since contractual non-compete clauses are set out in writing in the employment contract anyway. It would perhaps mean a form of clear, plain terms at the point of making an offer of employment.

  • Maximum length of non-compete clauses

Introducing statutory restrictions on the maximum length of post-termination non-compete clauses. Suggested limits are three, six or twelve months.

  • Prohibiting the use of non-compete clauses

As an alternative to compensation for the duration of a non-compete clause, the Government is considering whether to prohibit the use of such clauses in employment contracts altogether. They consider that this would provide greater certainty for all parties and have a positive effect on innovation and competition, but also recognise that consideration would need to be given to whether any exemptions should apply.

The consultation closes on 26 February 2021.

 

5th January 2021

FREE first advice

Have you ever wanted to just ask an expert employment law solicitor if they can help you, without worrying about what it may cost to contact them?

Get in touch

We’d like to talk to you to see what we can do to help, so please either call us anytime for free on 08000 614 631, email us or use the form below.

Together we can work out what your next steps might be...in confidence, at no cost and with no obligation.

SIGN UP TO RECEIVE UP TO THE MINUTE EMPLOYMENT LAW AND HR NEWS STRAIGHT TO YOUR INBOX

* indicates required
McCabe and Co Solicitors will use the information you provide on this form to be in touch with you and to provide updates and marketing. Please let us know all the ways you would like to hear from us:
You can change your mind at any time by clicking the unsubscribe link in the footer of any email you receive from us, or by contacting us at philip@mccabeandco.com. We will treat your information with respect. For more information about our privacy practices please visit our website. By clicking below, you agree that we may process your information in accordance with these terms.
We use Mailchimp as our marketing platform. By clicking below to subscribe, you acknowledge that your information will be transferred to Mailchimp for processing. Learn more about Mailchimp's privacy practices here.