Government decision on non-compete clauses won’t be decided for “some way off” say legal experts

Osborne Clarke has reported that the UK government is proposing to introduce legislation “when parliamentary time allows” to cap the duration of non-compete provisions in employment contracts at three months. However, a decision won’t be made for some considerable time.

Contractors and limited company solo self-employed freelancers and consultants can sometimes be faced with non-compete clauses in client contracts. Read these carefully before signing because some non-compete clauses could have you not able to work for another company in a certain sector for years or within an enture geograohic market. That goes against the grain of being a freelancer and your earning power.

Often a conversation with a client before siging a non-compete clause is beneficial for both parties. The hiring company may find that the need a non-disclosure agreement rather than a non-compete, for example.

You have every right as a business to request that a certain clause is tweaked to be more flexible and to have that change confirmed in writing from the person hiring you. If you are a contractor going through a recruitment agency you should also ensure you know what you are signing. What’s the point of being a freelancer if you can’t build your business or work for who you want?

Here’s the latest from Osborne Clarke written for the benefit of hiring companies:

“The government has now published a response to its earlier consultation on the use of non-competition clauses in employment documentation (which closed at the start of 2021). The formal consultation response confirms that the government:

• will apply this three-month limit to non-compete clauses in contracts of employment and “limb (b)” worker contracts only (the government states in the response that clauses in workers’ contracts are unlikely to be enforceable). The cap will not be applied to non-compete clauses in “wider workplace” contracts such as partnership agreements, limited liability partnership agreements and shareholder agreements;
• will not be moving forward with introducing mandatory compensation for the period of a non-compete clause or requiring employers to set out the terms of a non-compete in a separate form given that they are usually contained in an employment contract;
• does not intend to change the existing legal position that employers can unilaterally waive a non-compete.

It is unclear when the government proposes to introduce draft legislation, which will then need to pass through the parliamentary process. Any legislative reform will therefore inevitably be some way off.

The response does confirm that the government will be publishing guidance to enhance “transparency” and that the common law principles of enforceability will continue to apply to non-compete clauses that do not exceed three months; that is, the non-compete provision should protect the employer’s legitimate business interests and go no further than is necessary to protect those interests.

It is unclear when the government proposes to introduce draft legislation, which will then need to pass through the parliamentary process. Any legislative reform will therefore inevitably be some way off.

Non-compete provisions are currently an important contractual term for businesses in some sectors and particularly where businesses are looking to protect their important interests following the departure of senior or highly skilled employees. The government’s proposals do not change the current status quo and employers should continue to consider what measures they need to introduce in the employment contract to protect their business in the usual way.

However, the proposals do bring into sharp focus the scrutiny that non-compete and other business protection measures will inevitably face. Real care should be taken in determining what measures are appropriate in the particular circumstances and ensuring that they reflect the current market for the sector in which the business is operating and each individual’s working practice and how these would sit with any future reforms. The consultation response also emphasises the importance of keeping any such measures under review to reflect changing circumstances.”