Government publishes working paper on non-compete reform

Background

Calls to review non-compete clauses are not new. The 2016 government review concluded that restrictive covenants remained a legitimate tool for protecting business interests. A further consultation in 2020 revisited the issue in the context of post-pandemic labour market conditions, and in 2023 the government proposed a statutory three-month cap, although this was not implemented before the 2024 general election.

The new working paper restarts that conversation. It reflects concerns that non-competes may dampen job mobility, slow the spread of skills across the economy, and create barriers for start-ups and scaling businesses. The paper also states that research shows that many employees comply with non-competes without questioning enforceability, partly due to the cost and risk of litigating in the High Court. At the same time, non-competes can support investment in training and protect confidential information, and evidence on their overall economic impact remains mixed.

Options for reform

The paper puts forward four possible approaches.

1. The first is a statutory limit on the duration of non-compete clauses. A previous proposal for a three-month cap received support, though the paper acknowledges that any cap may be treated as a default standard and would not remove the need to satisfy the reasonableness test under existing law.
2. A second option is a complete ban, bringing the UK into line with some foreign jurisdictions. This could increase labour mobility but may prompt employers to rely more heavily on other restrictive covenants or confidentiality provisions.
3. A third option is restricting non-competes to workers earning above a specified salary threshold. This is already used in several countries and is intended to protect lower-paid workers, who may be least able to challenge unenforceable restraints. The paper notes, however, that salary thresholds bring practical challenges and risk creating pay-related cliff edges.
4. The fourth option is a hybrid model, combining a ban below a salary threshold with a statutory time limit for higher earners.

Enforcement and next steps

The government also seeks views on whether the cost of High Court litigation deters employees from contesting restrictions, and whether any reforms should address this. At present, there is no indication when any changes might be implemented.

For now, no immediate amendments to employment contracts are required. However, the paper signals renewed interest in reforming post-termination restraints, and employers who rely on non-competes may wish to contribute to the consultation to ensure that operational and commercial considerations are reflected in any future proposals.

For more information or advice, please contact Alice Mennell in our Employment team.