An uncertain future for non-compete clauses in the “New Normal”?

An uncertain future for non-compete clauses in the “New Normal”?

The BEIS consultation process

On 4 December 2020, the Department for Business, Energy & Industrial Strategy (BEIS) launched a new consultation on the use of non-compete clauses in contracts of employment. The closing date for the submission of responses is 26thFebruary 2021.

The BEIS are inviting respondents to provide their views on 2 principal questions, namely:

  • “Proposals to make non-compete clauses enforceable only when the employer provides compensation during the term of the clause, and whether this could be complemented by additional transparency measures and statutory limits on the length of non-compete clauses; and
  • An alternative proposal to make post-termination, non-compete clauses in contracts of employment unenforceable.” 

The consultation process is part of the Government’s strategy to look at innovative measures to stimulate the economy, create a more competitive job market, increase competition, offset the impact of the Covid-19 pandemic and aid the recovery of  the economy.

As part of the consultation a number of options are being considered relating to non-compete clauses, these include:

  1. Mandatory financial compensation for former employees during any period where post-termination restrictions will apply;
  2. A requirement for employers to fully disclose the exact terms of any non-compete clauses prior to their entering into the employment relationship;
  3. Statutory time limits on the length of a non-compete clause; and
  4. Consideration as to whether non-compete clauses should be made entirely unenforceable.


Summary of the current law

Post termination restrictive covenants incorporate a variety of prohibitive clauses, which include non-compete clauses, and are commonly found in contracts of employment.  They are intended to protect an employer’s legitimate business interests by restricting a former employee’s ability to unfairly exploit confidential information, customer contacts, supplier information, employee relationships gained by virtue of their employment and competing with the employer following the termination of their employment. Clauses of this type are usually limited to a specific period of time and will generally reflect the seniority of the former employee, the information they were privy to and the level of contact that had with key customers and personnel by virtue of their employment.


Enforcement of non-compete clauses

The legal principles relevant to non-compete clauses form part of the restraint of trade doctrine. The courts have traditionally recognised the tension in this area between a person’s freedom to trade, and the need to uphold contracts and to protect legitimate interests, as part of a contract. They have shown a reluctance to prevent a person from pursuing their lawful trade. The task of the court when considering the enforceability of clauses of this nature is to balance these competing aspects of public policy.

The law in this area is predicated on the presumption of unenforceability. Consequently, all non-compete clauses, and other restraints of trade, are presumed to be unenforceable unless they are demonstrated to be reasonable.  In assessing reasonableness, and enforceability. the court will consider whether the restraint sought (i) does in fact protect a legitimate business interest and (ii) is no wider than reasonably necessary to protect that particular business interest.

Any such clause will therefore be interpreted in accordance with the “contra proferentum” rule, namely that the onus to will be on the employer to demonstrate  to the requisite standard that the prohibition sought is no more onerous than reasonably necessary to protect that legitimate business interest.

Employers will also need to demonstrate that it is not possible to sufficiently protect a legitimate business interest through other terms in the employment contract. For example, if there was commercially sensitive information that would not be protected by a confidentiality clause then the court would be more inclined to enforce the post termination restriction . Similarly, a non-compete clause may be more likely to be enforced where the employee had a significant degree of influence over customers or suppliers.

The relative equality or inequality of bargaining position between the parties may be a factor in determining reasonableness. The more junior the employee, the more difficult it may be to justify any restraint. Senior employees, who may have negotiated their contracts on an individual basis may be more readily  held to the terms of those agreements.

As a general proposition non-compete clauses are difficult for employers to enforce in the event there is a dispute following termination. It is therefore important that they are drafted with a sufficient degree of precision, are proportionate in scope and properly reflect the  factual matrix of any employment relationship.


What can be interpreted from the consultation framework?

The questions framed within the consultation document suggest that the Government is of the view that the proposed changes would have a positive impact upon the individual employee i.e. enabling them to pursue new business opportunities without restriction and therefore promoting competition.

The proposals to restrict, and even abolish, an employer’s ability to incorporate post termination restrictions of this type in an employee’s employment contract could make it more difficult to protect business’ commercial interests. This could be of particular interest to companies where key employees have access to commercially valuable information such as tender bids and pricing structures, which makes them vulnerable to being “undercut” by any competitor.

The proposal to introduce mandatory financial compensation for former employees during any period where post-termination restrictions apply would to some extent bring this area into alignment with gardening leave provisions, which effectively provide the same protection but operate during any contractual notice period and prior to the termination of the contract of employment.


What next for employers?

The outcome of the consultation is expected to be published later in 2021 at which time it should be known whether the government will then introduce new measures restricting the operation of such clauses. In the interim non-compete clauses can continue to be used; however, employers may consider whether to strengthen other applicable contractual terms prior to employees being placed in a stronger bargaining position by virtue of the enactment any new legislation.

Employers who wish to incorporate this type of restriction in an employee’s contract of employment should consult with a specialist lawyer to ensure that it will provide the protection required and have a greater likelihood of being enforceable following termination.

How Aquitas can help you.

If you have any queries regarding the above our Employment and Company Law teams can assist in you in finding the solution that is best suited for the needs of your business.

Call us on 0207 099 4444 or email us @