Reforming non-compete clauses

The Prime Minister has indicated that the government will press ahead with reforming the law on non-compete clauses.

In a speech to the Innovation Nation Summit on 9th October, the Prime Minister said the following:

‘I believe some businesses have gone too far in their use of restrictive practices such as non-compete clauses … Non-compete clauses stop workers from joining a rival organisation or indeed setting up one of their own after they have left their role and I think that’s a drag on innovation and prevents the best really being energised and bringing that dynamism to the economy.

So, we are looking at changing this. They are often held back and unpaid during the time they have to sit out on the sidelines, and it does, as I say, stunt innovation and traps workers. So, I can confirm today we will legislate to make sure that non-compete clauses will no longer be a barrier to hiring for our most promising startups and scaling firms. Call it, if you like, the Bosman ruling for the innovation sector, but I think it’s much needed and long overdue.’

While we don’t yet have any details – and the devil will certainly be in them – a clue as to what may be involved appeared in 2025. Last year the government published a working paper inviting views on options to reform non-compete clauses in employment contracts. (In response to a 2020 consultation, the previous government announced in 2023 that certain measures would be taken to reform the law in this area, but no action was actually taken.)

The government’s expressed objectives are:

  • boosting labour market dynamism by making it easier for workers to move jobs or build their own start-up business
  • reducing barriers to recruitment so that high productivity, innovative businesses, particularly scale-ups at critical stages of growth, can access the talent they need
  • promoting competition and innovation by maximising opportunities for the most talented innovators, experts and entrepreneurs
  • protecting workers so that they do not have to face extended periods of time out of the labour market in their area of expertise, often as long as 6 to 12 months, unable to afford the financial burden of challenging a non-compete clause in the courts – or so that they can afford to move job in the first place

The working paper laid out certain options for reform (along with a brief discussion of the pros and cons of each), including:

  • imposing a statutory limit on the length of non-compete clauses
  • imposing a statutory limit of on the length of non-compete clauses according to company size
  • a complete ban on non-compete clauses
  • banning non-compete clauses below a salary threshold, and
  • combining a ban below a salary threshold and a statutory limit of 3 months

The working paper also asked whether the limitations should be applied to ‘wider workplace contracts’, which could include shareholder agreements, equity incentive award documents and LLP agreements.