Change is on the horizon for non-compete clauses
2nd June, 2023
It has recently been announced that the government intends to change the law to limit the length of a non-compete clause in employment contracts to a maximum of 3 months.
The rationale appears to be that this change is necessary in order to promote greater competition and employment flexibility within the marketplace.
At this time there are no plans to change the law with regard to confidentiality, non-solicitation and non-dealing clauses, however, breaches of these are often more difficult to prove. Because of this, non-compete clauses are often the best way for businesses to protect their confidential information, client relationships and potential prospects and increase the chances of an employer getting an injunction against a former team or employee, where they or that employee has joined a competitor or set up in competition.
There is still some uncertainty
Confirmation is awaited as to when the proposed change in the law would come into effect. Clarification is also needed as to whether non-compete covenants that are drafted to run for more than three months would be rendered void and entirely unenforceable or whether these longer clauses could automatically change to three months in duration and then be assessed to determine whether, or not, they are enforceable. Arguably, the Government proposal should not necessarily prevent employers from negotiating a longer non-compete clause in a settlement agreement, as part of an exit package.
Whilst non-compete covenants that don’t exceed the 3-month limit can still be enforceable, most standard non-compete covenants tend to have a duration of longer than 3 months. The proposed legislative change, if it is passed, therefore has the potential to leave a lot of employers with post-termination restrictions that are in urgent need of review and, where appropriate, amendment.
Whatever your position, the prospect of the law changing in the manner suggested is enough to label the proposed change as yet another barrier to employers wanting to protect their confidential information and client relationships.
What should employers be doing now?
Employers will need to consider other methods of protecting their business interests going forward, such as increased strategic use of garden leave clauses. Now would be a good time for employers to conduct a review of and obtain advice upon the post-termination restrictions in their employment contracts and our Employment lawyers can assist you with this.
Our team of expert Litigation lawyers also have extensive experience of securing injunctions for employers, as well as defending ex-employee clients and new employers against injunction applications. Please do get in touch, should you require assistance with these matters.
Please note that this briefing is designed to be informative, not advisory and represents our understanding of English law and practice as at the date indicated. We would always recommend that you should seek specific guidance on any particular legal issue.
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