Time limited planned for non-compete clauses in contracts of employment.

Employment solicitor, Liz Watt, discusses the governments plans to introduce a three-month limit on non-compete clauses.

What is a non-compete clause in an employment contract?

As a business owner, the last thing you want is for an employee to leave and set up a competing company or take their skills and knowledge to a competing business. For this reason, you may include a ‘non-complete’ clause (also known as a restrictive covenant) in your contracts of employment with the objective of stopping ex-employees from carrying out a particular action for a specified time after their employment contract has ended. Currently, UK non-compete clauses have no time limits and enforceability is derived from case law.

What is an example of a non-compete clause in an employment contract?

• Non-Solicitation – Preventing an ex-employee from approaching former customers, staff, clients, vendors, or business partners to attempt to hire, retain or create contractual relationships with them.

• Non-Competition – Prevents an ex-employee from working for a direct competitor.

• Non-Dealing – Employees cannot take any business or staff from their former company.

What’s changes are the Government making to non-compete clauses in employment contracts?

The Government has recently announced that it intends to make the following changes to non-compete clauses in contracts of employment and worker contracts whereby non-compete clauses will be limited to three months. The reforms will not apply to shareholder agreements, partnership agreements and LLPs (notwithstanding recognition of LLP members as workers in case law).

When will these changes take place?

There is no date set for when these changes will be made other than when ‘parliamentary time allows’ and there are many outstanding questions to be addressed.

How could I manage non-compete clauses as a business owner, considering this change?

• Consider making non-compete clauses shorter.

• Increase notice periods and garden leave provisions. Workers on garden leave may be subject to limits on who they can communicate with, where they can go, required availability, and, crucially, are normally prohibited from doing any work at all, competitive or not.

• Consider the use of alternative contractual arrangements to protect your business. For example, more reliance on other restrictive covenants, such as non-solicitation or non-dealing clauses, enhanced confidentiality, and intellectual property protections.

• You may also want to make greater use of agreements outside of the employment/worker contract for example, shareholder agreements, long-term incentive plans and options schemes.

There are still many questions to be answered before these changes are implemented. If you would like to discuss your existing contracts of employment contact Liz Watt on 01905 900919 or email her on liz@bradleyhayneslaw.co.uk.