A key priority for the government is to kickstart the UK's economic recovery following the turbulent impact of the Covid-19 pandemic. The government is, therefore, considering all the available options to encourage individuals to start new businesses and find new work including, consulting on the reform of post-termination non-compete clauses in employment contracts. The consultation will close on 26 February 2021.
What is a non-compete clause?
Non-compete clauses are included in employment contracts to curtail an employee's ability to work for a competitor or set up a competing business for a specific time period after the termination of their employment. Provided that the scope of these clauses are reasonably necessary to protect an employer's legitimate business interests, they provide an effective way for employers to, for example, protect their confidential information.
What does the consultation say?
The potential reform of non-compete clauses is not a new area of focus for the government. Back in 2016 a Call for Evidence was published on how such clauses were used in practice and the pros and cons of such clauses. At that time the government decided to take no further action.
Now the government is consulting on options to reform non-compete clauses. It is particularly interested in views on making post-termination non-compete clauses in contracts of employment enforceable only when the employer provides mandatory compensation during the term of the clause. This would discourage widespread use of such clauses "as standard" so that individuals have the freedom and flexibility to use their skills to drive the economic recovery. The government also outlines potential benefits such as the reduction of litigation around breaching such clauses for both the employee and the employer.
Mandatory compensation could be complemented by other actions such as a requirement for employers to disclose the exact terms of the non-compete agreement to the employee in writing before the employment relationship is entered into and if they do not, the clause is unenforceable. Alternatively the government is looking at putting statutory restrictions on the period of non-compete clauses in contracts of employment which will provide certainty and prevent the use of non-compete clauses which are unreasonable in length.
The government is also consulting on banning such clauses. The government suggests that this could have a positive effect on innovation, competition and labour mobility which can impact economic growth.
It is worth highlighting that the scope of the consultation is targeted at post-termination non-compete clauses in contracts of employment and is not seeking views on, for example, confidentiality and intellectual property clauses.
Ashurst Trade Secrets webinar
Ashurst hosted a panel session on 10 December which looked at how employers can best protect their confidential information. A forensic expert also provided guidance on procuring evidence of misappropriation.
Further information
For more information about the scope of the consultation or if you have any questions, please get in touch with your usual Ashurst employment contact.
