Reforming restrictive covenants

The government is canvassing opinion on options to reform the law governing the use of post-termination restrictive covenants, as well as extending the 'ban' on the use of exclusivity clauses.

A consultation paper on ‘non-compete clauses’ in employment contracts has been published seeking views on reform options. The government believes that such restraints can stifle competition and the creation of new start-ups. While the consultation refers to non-compete post-termination restrictions in its title and throughout, it also seeks views on whether the proposals referred to below should apply to non-solicitation clauses, non-dealing clauses, and goodwill protection clauses (to prevent the seller of a business going immediately into competition with the purchaser).

Two areas are in play in the consultation:

  1. making such clauses enforceable only when the employer provides compensation during the term of the clause (to discourage their widespread or unreasonable use), and complementing this with additional transparency measures (e.g. mandating the disclosure of such clauses before someone starts work) and statutory limits on the length of such clauses, and
  2. banning the use of post-termination restrictive covenants completely (in our opinion, this is highly unlikely)

The consultation closes on 26 February 2021.It’s not the first time this has happened - in 2016 BEIS launched a ‘call for evidence’ which got no further than that and was quietly dropped.

The government is also asking for views on a proposal to extend the ban on exclusivity clauses to contracts where workers' guaranteed weekly income is less than the lower earnings limit. A prohibition on using such clauses already exists for zero-hours contracts. To exclude from this change higher-paid individuals who only work a few hours a week, the government proposes an exemption by setting an hourly wage cap at a specified level (the consultation suggests between £20 and £29 per hour).