Reform of non-compete clauses in employment contracts – still on the horizon?

The government has indicated that it will consult on options to reform non-compete clauses in employment contracts ‘in due course’. This means that proposals from the previous government that were expected to be abandoned following last year’s General Election may, in fact, still be under active consideration.

In a May 2023 consultation response published by the previous Conservative government, a significant reform of non-compete clauses in employment contracts was announced. The government had decided not to introduce mandatory compensation for the period of a non-compete clause nor to ban them completely. Instead, they proposed to introduce a statutory limit of three months on non-compete clauses in contracts of employment. This was a very significant proposal given that many non-competes are expressed to apply for up to 12 months post-termination (see our earlier blog post for more detail on this announcement). No further steps were taken by the previous government.

Fast forward two years, and it appears that the appetite for reform hasn’t gone away under the new Labour government. In a House of Lords debate on the Employment Rights Bill this week, non-competes were brought up in a discussion on the nature of working in tech and AI, and particularly the protection of workers in the sector. Lord Pitkeathley suggested that non-compete agreements pose a particular challenge for tech and AI workers, who are less concerned with ‘issues such as minimum wage and paid leave but how easily people can move between companies, start their own ventures and work across several fast-growing enterprises’. Lord Hunt agreed, arguing that non-competes can ‘so easily stifle innovation’.

In response to these comments, Baroness Jones (the Parliamentary Under-Secretary of State for the Department of Business and Trade) confirmed that the government will consult on options for reform of non-compete clauses in employment contracts ‘in due course’. In doing so, Baroness Jones stated that the government has been reviewing the ‘extensive research and analysis’ on non-competes from recent years, including a Competition and Markets Authority report published last year (see our earlier blog post for a breakdown of that CMA report).

As we have highlighted in previous blog posts, reforming non-competes presents a number of legal, practical and economic challenges. These include balancing the protection of legitimate business interests with the need to foster innovation, mobility and entrepreneurship – particularly in fast-moving sectors such as tech and AI. The implications of any reform could be far-reaching, not only for employers and employees but also for the broader competitiveness of the UK labour market. 

It remains to be seen whether the proposed options for reform will align with the previous government's approach, address the unanswered questions left by earlier proposals, or take a markedly different direction. Until then, businesses should continue to monitor developments closely and consider how potential changes may impact their use of non-competes going forward.

For more information, please speak to the authors of this blog post or your usual Freshfields contact.