The Department for Business, Energy and Industrial Strategy has opened a consultation exercise into the use of non-compete provisions, and potentially other forms of restrictive covenants, by employers in contracts with their staff, including workers and other forms of atypical arrangements. This is the second time in the last few years that the Government has sought views on this topic; the previous consultation exercise did not result in any changes to the status quo. However, with a more radical Government setting out its intent on making Britain more innovative and entrepreneurial post Brexit, there is a greater chance that changes could be made this time.
The proposal is that, for the first time in the UK, restrictive covenants in contractual arrangements with staff would be at least partly covered by statute and that this new legislation either prohibits the use of non- compete clauses or that employers would be obliged to pay the outgoing staff for them if it seeks to rely on them. The Government prays in aid the legislative position in California – where employee non competes are indeed prohibited – as an example of the type of entrepreneurialism that it is seeking to emulate in its initial proposal. However, intriguingly – and perhaps with a note of irony – its alternative proposal for compensation owes more to the practice of countries in the EU than the USA. The consultation also discusses potential additional transparency measures and the possibility of imposing a statutory maximum duration on non-compete clauses.
We will be contributing to the response of the Employment Lawyers Association to this consultation. Clients are encouraged to make their own views known to Government prior to the closing of the consultation on 26 February 2021. In the meantime, employers may wish to hold off on any periodic review of covenants in staff contracts pending the Government’s response to the consultation (although no timetable has been given for that response).