Proposed UK Reforms to Non-Compete Restrictions

In May 2023, the UK Government published its “Response to the Government consultation on measures to reform post-termination non-compete clauses in contracts of employment”.

The proposed reforms are:

1.  Post-termination non-compete restrictions in employment agreements and worker contracts to be limited to 3 months. However, the existing principles of enforceability will continue to apply. Meaning that even durations of up to 3 months will still be scrutinised to see that such a duration goes no further than is necessary to protect a legitimate business interest.
2. The reforms will only apply to post termination non-compete restrictions. They won’t apply to other forms of post-termination restrictions and so other post-termination restrictions e.g. non-solicitation, non-dealing etc. can still have a duration longer than 3 months.
3. The reforms will not apply to non-compete restrictions that are used in other agreements e.g. partnership or LLP agreements, shareholder agreements, investment agreements etc. This is because the balance of power is considered different than that between an employee/worker and employer.
4.  The UK Government will provide guidance on non-compete restrictions.
5. The reforms do not propose any restrictions on employers utilising other forms of business protection measures e.g. extending notice periods etc.

What the response has not addressed:

1. When the reforms will be implemented. The response states that the reforms will be implemented when “Parliamentary time allows”. It is not clear as to whether these reforms will be made before the next general election or if at all. The November 2023 King’s Speech (outlining the UK Government’s legislative agenda for the 2024 Parliamentary session) made no reference to a bill to legislate on non-compete restrictions and so pre-election changes seem unlikely.
2. The extent to which the reforms will apply to employers’ current non-compete restrictions with employees. For example, will employers be under an obligation to update all their existing employment agreements, will existing non-compete restrictions with durations in excess of 3 months be automatically reduced or voided, or will the reforms just apply to new employment agreements?
3. The extent to which garden leave periods will be off-set against the 3 months limit on the duration of non-compete restrictions.

Points for consideration

Given the response does not contain any restrictions on employers utilising other business protection measures to prevent skilled personnel from entering the market for as long as possible, many employers are likely to respond to the reforms by increasing notice periods and/or enhancing garden leave provisions.

Some employers may also make use of other agreements such as shareholder agreements, partnership or LLP agreements etc which the reforms do not apply to strengthen business protection.