UK inches closer to mirroring the US on non-competes in employment contracts

The UK Government is debating reforming the treatment of non-compete provisions in employment contracts. Here are the key takeaways:

Background: A non-compete provision restricts an employee from competing with their prior employer’s business (directly or indirectly) for a specific duration post termination of their employment.

Status quo: At present, the UK has no statutory restrictions on non-compete provisions and, under case law, non-competes are enforceable provided they are reasonably necessary to protect a legitimate interest. However, restrictions beyond 12 months are often unenforceable.

Current legislative discussion: The UK Government is proposing to implement legislation to limit the duration of post-termination non-compete provisions in employment contracts to three months. 

With such proposed legislative change, the Government aims to remove restrictions that suppress labour market mobility, reduce wages/wage growth, limit the ability of businesses to compete and innovate, and reduce productivity by narrowing the talent pool. The UK also considered imposing a complete ban on non-compete provisions (as proposed by the US FTC), but recognised that non-competes can “act as a mechanism to align incentives between workers and employers and enable investments.”

Practical implications: For now, clients should be aware of the ongoing debate in the UK to implement legislation, possibly with retroactive effect, that would limit non-compete provisions in employment contracts to three months, and possibly deem extended non-compete provisions illegal. More to follow.