The UK government has launched a call for evidence to gather the views of employers and employees on non-compete clauses in employment contracts.
The government is concerned that these clauses may unfairly hinder employees from moving freely between employers, and that they may be stifling entrepreneurship. It refers to a report from the Social Market Foundation which recommended banning non-compete clauses in employment contracts, on the basis that they act as a barrier to employees starting their own businesses.
The government indicates that if it finds that non-compete clauses are a barrier to flexibility, it will consider how best to act and the results of its call for evidence will help inform the next steps.
What are non-compete clauses?
These are clauses in employment contracts, often called restrictive covenants, which restrict an employee’s activities after the employment ends. For example, they might (for a set period of time after the employment ends) prevent a former employee from:
- Working for a competitor (including a business they start themselves);
- Dealing with the former employer’s customers; and / or
- Hiring workers of the former employer or enticing them to start work elsewhere.
Aren’t there restrictions on non-compete clauses already?
Yes. The law already provides that they are only enforceable if they are designed to protect a legitimate business interest (such as goodwill or trade secrets) and are no wider than is reasonably necessary to protect that interest. Over the years, a significant body of case law has built up regarding the factors that will influence enforceability and courts will look at, for example:
- The role and influence of the worker;
- The geographical scope of the restriction; and
- How long the restriction applies.
What is the government asking?
The call for evidence asks various questions, including:
- Where are non-compete clauses used? Are they more prevalent in particular sectors or roles?
- What are employers’ justifications for using non-compete clauses?
- Have employers challenged breaches of non-compete clauses? What happened?
- Have workers been subject to non-compete clauses? Did this influence their decision to leave an employer?
- Have employers been influenced by non-compete clauses in hiring decisions?
- Would legislation to restrict non-compete clauses affect your business?
- Would new or improved guidance improve confidence around the valid use of non-compete clauses?
How do I submit my views?
The government’s call for evidence closes on 19 July 2016 and you can access it here.
If you need more information on non-compete clauses or would like us to review any restrictions in your employment contracts, please get in touch with your usual Brodies’ contact
On May 27, 2016