The current position

In May 2023, the UK Government announced proposals to limit the duration of non-compete clauses to three months.  As yet, there has been no law changes to bring this into force, but it certainly signposts a shift in shortening restrictions.  Please note this timeframe applies only to non-compete clauses, not non-solicitation or non-poaching obligations.  It should also be remembered that this only restricts the terms of non-compete clauses included in employment and worker contracts. They would not restrict the use of such clauses in other contracts e.g. share purchase agreements or shareholders’ agreements.

Action required

It may be helpful to review existing arrangements with key employees to confirm the extent of non-compliance with the new rules.  Alternative routes – e.g. increased use of garden leave or longer notice periods.

What next

It is unclear what the jurisdictional scope of the changes will be, and whether the changes will apply retrospectively or only to new contracts. If applied retrospectively, the implications for non-compliant terms in existing employment and worker.

The proposals are intended to promote a more competitive economy by making it easier for individuals to start new businesses and find new work, and for businesses to fill vacancies and attract better candidates.

There are a number of key points which can be taken from information published by the Government to date:

• The restriction will only apply to employment and “worker” contracts; it will not extend to non-compete clauses used in wider workplace contracts such as partnership agreements and shareholders’ agreements.
• If a non-compete clause does not exceed three months in duration, existing English law limitations on enforceability will still apply; in other words, the non-compete will be unenforceable unless shown to extend no further than is reasonably necessary to protect the employer’s legitimate business interests.
• The restriction will not affect the ability of employers to use longer (paid) notice periods or gardening leave, or to use non-solicitation clauses or confidentiality clauses, to achieve similar protections.

Timeline

There are a number of matters which are still to be confirmed by the Government, including:

• When the proposals will be implemented and take effect. The Government has stated that necessary legislation will be introduced when “parliamentary time allows”.
• Whether employers are expected to update their employment contracts which contain non-competes exceeding three months.
• Whether the changes will apply retrospectively to existing non-competes or only to new contracts, and whether existing non-competes with durations longer than three months will continue to be enforceable up to the limit or be void entirely.
• What the proposals mean for settlement agreements. It is not uncommon for employers to require a new or extended non-compete with an employee as part of an agreed exit (in return for an additional payment). Although not dealt with in the proposals so far, we would expect that the new three-month limit will apply to such non-competes.

If you'd like assistance in relation to the issues raised please do contact Carrie Beaumont at cbeaumont@ortolan.com