Non-compete clauses are commonly included in employment contracts to prevent an employee from joining or establishing a competing business after they have left employment. On 10 May 2023 the Government published plans to limit the length of non-compete clauses to three months.
The employer is currently free to decide the duration of the restriction, but this is subject to the principle that any restriction which goes beyond that which is reasonably necessary to protect the employer’s legitimate business interests will be void as contrary to public policy and in restraint of trade. A period of 6 to 12 months is usually adopted in practice.
The proposed statutory reforms mean that in future all non-compete clauses will be limited to a maximum of three months. The Government estimates that up to five million UK workers are currently subject to non-compete restrictions and intends for the reforms to provide these individuals with greater freedoms to switch jobs and for employers to have greater opportunity to grow their businesses by allowing them to recruit candidates with valuable experience.
Whether these aims will be achieved will remain to be seen.
The implementation date for any new legislation is not known as it will be brought in only when parliamentary time allows.
What is likely in the immediate future is that there will be more focus on other types of restrictions in readiness for the changes being implemented.
We envisage that previous employers are going to be less likely to take High Court enforcement action to enforce a non-compete clause for just three months. The legal costs and the amount of time internally that it takes a business to put together an injunction application makes this almost inevitable. Even if you succeed, is it worth the cost and effort to keep an ex-employee from working for a competitor for a few weeks? In some cases, it will be, but it is easy to see that in many cases employers may consider it is not worth enforcing it.
This may mean that employers will place a renewed emphasis on other restrictions in the contract of employment such as those that prevent an employee on leaving from soliciting or any sort of dealing with previous customers, clients or employees as these will not be so limited and so could continue for 12 months provided that they pass the test of reasonableness. However, these clauses are often not the easiest to evidence.
In terms of enforcing restrictive covenants, non-compete clauses tend to be the easier ones to evidence. It can often be easy to see that someone has started work for a competitor, but harder to evidence that someone has actively solicited a customer to trade with them as opposed to a customer approaching them direct without solicitation. It can make it more difficult to take court action to enforce breaches of such covenants and also harder to police them if you do obtain an injunction.
As a result, it looks like the overall trend is going to be that court action taken to enforce restrictive covenants is likely to decrease.
The result is likely to be twofold. First a renewed emphasis on effective confidentiality clauses within employment contracts which should be express and bespoke, preventing an employee from using confidential information for the benefit of any new employer. There is likely to be more emphasis on such clauses. As a matter of practicality employers should be making sure that it is more difficult for people to take large amounts of confidential information with them when they leave. Restrictions and logs on what information people can download or access will help restrict and monitor this.
Often when someone breaches their restrictive covenants, they take confidential information with them to compete illegally. Taking legal action for breach of confidence can already be the more effective way to litigate these sorts of cases as opposed to simply trying to enforce the restrictive covenants. Given the proposed reduction in the period of non-compete restrictions it appears that enforcement around confidentiality will become even more important than it is now.
Second, we can see longer notice periods being put in place and used in conjunction with garden leave clauses, even more than they are now. Such clauses will be able to keep senior executives out of the industry for longer than three months without having to rely on more than three months’ non-compete restrictions.