David Cooper, employment partner at Excello Law, gives his view on the state of non-compete clauses in the UK and what reform could look like.
Buried within the small print of the October Budget is a passage about “reform of non-compete clauses”. We have been promised a government position statement early next year, ahead of legislation. It is claimed that such legislation is necessary “so that non-compete clauses in employment contracts do not prevent startups and scaling firms from hiring, or workers in the everyday economy from moving jobs”.
As the Chancellor’s advisers will be able to tell him, non-compete clauses have been subject to the common law restraint of trade doctrine for time immemorial. Those clauses will be looked upon as void and unenforceable unless they can satisfy two key legal tests. They must protect a legitimate proprietary interest. And they must be reasonable in scope and duration.
In the world beyond Westminster and Whitehall, properly advised businesses seeking to rely upon post termination restraint clauses of any type will know this very well. They will ask themselves whether they need to protect a customer base via a non-dealing restraint, alongside non-solicitation. They will consider whether there is any need to prevent ex-employees from engaging their key staff, rather than simply from enticing them. And they will consider what reasonable period of time would enable any sensible defensive marketing exercise following the ex-employee’s departure. If they get it wrong, the courts will strike their restraints down, and will not permit substitution of less burdensome ones.
What does any of this have to do with “non-compete”? Let us take a closer look.
If an employer really believes that there is any need to bar ex-employees from earning a living via their accumulated skills and expertise, rather than simply ensure that they leave their former customers and colleagues alone, there is more of a burden to discharge. Can they show that their business is of a “rocket science” nature, where all of their key employees are walking treasure houses of trade secrets? Ot that the livelihood of their business is so bound up with a distinct geographical territory that they are entitled to ringfence its footfall, whether literal or figurative?
A few moments’ thought may lead the employer to conclude, on reflection, that non-compete clauses are in most cases unlikely to be enforceable, and that lesser restraints – not forgetting the ordinary duty to refrain from misusing confidential information at any time – are a more effective way to protect a business against former employees with questionable intentions.
As such, the perceived difficulties for startups, scaling firms and workers in the everyday economy may not be as severe as feared. Well drafted and well focused non-compete clauses may not in practice be an unreasonable impediment to their interests.
Taking all of that into account, is there any pressing need for new legislative control on non-compete clauses? Opinions may vary. The Chancellor could always remind himself that on a previous occasion when government chose to intervene in the employment relationship and replace time honoured ordinary practice with a legislative substitute – David Blunkett’s statutory disciplinary procedures – it soon became evident that those reforms were universally hated by employers, employees, unions and employment judges alike. It was hardly surprising that they were ignominiously scrapped.
Whatever 2027 may bring for non-compete clauses, we at Excello Law will be able to step up and advise.
