The Department for Business, Energy and Industrial Strategy has opened a consultation process after publishing a paper on proposed measures to change the rules on post-termination non-compete restrictive covenants. Government ministers are essentially looking into whether to make it harder for employers to stop their workforce leaving and going into competition with their employer.
A statement on the Gov.UK website says: “We are seeking views on options to reform post-termination non-compete clauses in contracts of employment.” The deadline is 11.45 pm on 26 February 2021.
What is a post-termination non-compete restrictive covenant?
Employment contracts, particularly those for professionals or senior employees or executives, often contain clauses which prevent employees from doing certain things when their employment comes to an end. Commonly, this includes preventing them from trying to take customers with them when they leave or poaching other employees. These types of clauses are called either post-termination restrictions or restrictive covenants; both refer to the same thing.
One particular type of post-termination restriction is called a non-compete clause. This is the toughest sort of restriction to impose on a departing employee as it prevents them from working for a competitor or setting up in competition.
What is the consultation about?
The consultation paper provides two key talking points:
- Whether the law should be changed so that post-termination non-compete restrictive covenants are only enforceable in situations where the employer continues to pay remuneration during the restricted period; or
- Whether non-compete clauses should be banned entirely.
The consultation paper has been issued as the Government seeks ways to bolster economic recovery in the wake of the COVID-19 pandemic by incorporating a more entrepreneurial culture, creating conditions for new jobs and to increase competition, a model that has long been put forward as the reason for the rapid growth of the technology sector in Silicon Valley, California.
However, it is not the first time they have looked at the issue. In 2006 the (BEIS) called for evidence in relation to non-compete clauses as ministers became influenced by a US Treasury Department report analysing the economic effects of non-compete clauses and urged reform.
That issue was shelved after polarising opinion; established business arguing in favour of the law as it stood, while younger companies pushed for more flexibility.
The consultation page can be found at Measures to reform post-termination non-compete clauses in contracts of employment - GOV.UK (www.gov.uk)
