Government to introduce limits on non-compete clauses in contracts

Non-compete clauses, otherwise known as restrictive covenants or post-termination restrictions, are used in contracts to restrict an employee from working for a competing business for a set period of time following their departure from the business.

While non-compete clauses can offer businesses protection with their clients and any confidential information, they can inhibit the leaver’s ability to work in a similar field following their termination, thus making the process of job searching much harder.

New legislation proposed by the Government plans to limit the length of non-compete clauses so that the clause can only be effective up to a maximum of three months after the employee leaves the business.

Although it has not yet been confirmed when this change will take place, employers are being encouraged to check their current contracts and what may need to be updated with the introduction of this new legislation.

This should be relatively straightforward for new employees, as the employer can update their contract templates and easily issue these new contracts with the new three-month limit specified for new starters.

However, it has not been made clear how these changes will affect existing contracts.

Some suggest that any active non-compete clauses could automatically default to the three-month limit.

The Government has confirmed that this change does not extend to the employer’s use of paid notice and garden leave, non-solicitation and non-dealing clauses, and confidentiality clauses.

Therefore, employers will still have some security measures to protect their business and avoid any risks around confidentiality and/or loss of clients.

We are still awaiting further details, including the date when this new legislation comes into effect and the implications for existing employees, from the Government.