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19th January 2021

Government consultation on reform of post-termination non-compete clauses in employment contracts

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The government recently launched a consultation on measures to reform post-termination non-compete clauses in employment contracts. Proposals under consideration include requiring employers to pay employees during non-compete restrictions or banning them altogether.

Such proposals could have a significant impact on a variety of sectors where employers rely on those protections to preserve their interests in goodwill, confidential information and the stability of their client based and workforce.

The government is concerned that non-compete clauses are effectively a barrier to competition, new jobs and innovation because they prevent individuals from working for competing businesses or starting new businesses for a period of time. Currently, in the UK, employees are not usually paid during the period of a non-compete covenant. In certain other jurisdictions however, such as Germany, France and Italy, payment is a requirement.

The consultation seeks views on proposals to:

  • Require employers to continue paying compensation to employees for the duration of a post-termination non-compete clause. This could be complemented by a requirement for employers to confirm in writing to employees the exact terms of a non-compete clause before their employment starts, and a limit by law on the length of non-compete clauses; or
  • Ban the use of post-termination non-compete clauses altogether.

The possibility of a ban on non-compete clauses may well cause concern for businesses who use them to protect their legitimate business interests. The consultation closes on 26 February 2021. The document advises that any decision to progress any of the proposals would require consideration of the benefits and risks before implementation.

For more information on the items raised in this article please contact a member of our Employmenet Law team.