Last month the government confirmed plans that it intends to reform non-compete clauses in employment contracts.
A non-compete clause is a term in an employment contract that stops a former employee, or business partner, from working for a rival, starting a competing business, or operating in the same industry for a set time and geographic area after leaving. From an employer’s point of view they are essential to protect legitimate business interests, including trade secrets, confidential client lists, proprietary technology, and workforce stability.
It is understood this move is being taken to remove barriers to hiring and make it easier for workers to move between roles, particularly in start-up and fast growth businesses. Certainly without them in place employees will almost certainly benefits from greater career freedom, increased job mobility/ability to launch own business, better pay and bargaining power leading to higher earning potential, less time out of the jobs market and lower stress and potential legal costs.
Changes expected from 2027
As yet, there has been no detail on exact details or implementation dates, but a consultation will be undertaken first before the government plan to set out a more detailed position in early 2027. In addition, there is as yet no indication on whether this would be retrospective, i.e. apply to all existing employment contracts, or just to future agreements.
However, whilst the changes will undoubtedly make it easier for businesses to attract experienced talent, a word of caution is necessary in regard to how employers can continue to effectively protect confidential information, customer relationships and other commercial interests when someone leaves a job.
A balance is essential
Current non-compete clauses have no statutory limit on their duration and in many cases, unless drafted very carefully, can be difficult to enforce unless they are reasonably necessary to protect legitimate business interests. However for an employer’s point of view, it’s important to get the right balance in the current economic landscape in order to still be able to pursue an edge on competitors.
Start preparing now
Regardless of whether the government instigate a restriction on non-compete clauses below a certain income threshold and a statutory limit of three months on non-compete clauses in relation to employees earning above the limit, or remove them completely, employers should take some time to think about the alternatives.
We advocate that all employers should undertake some due diligence in line with the suggestions below to prepare for any changes in 2027 to non-compete clauses:
- Review all current employment contracts to identify which roles have non-compete clauses.
- Tailor restrictions based on employees’ access to key intellectual property, sensitive data or client connections.
- Reduce over-reliance on non-compete clause by ensuring other post-termination restrictions are robust, reasonable, and enforceable, this may include:
- Longer notice periods or garden leave clauses to allow client relationships to cool and confidential information to go out of date.
- Strong confidentiality provisions to protect and safeguard sensitive data and intellectual property
- Introduction of non-solicitation, non-dealing clauses to prevent former employees from poaching clients/customers.
- Keep an eye on upcoming government consultation details and draft legislation to see whether rules will involve a complete ban, a salary threshold, a statutory duration cap (such as 3 months), or a tiered SME approach.
How can we help?
If you would like help to review contracts, or advice and support on making other restrictions in order to protect your business, then get in touch today by emailing caroline.robertson@actifhr.co.uk