Post-termination Non-compete Clauses: Proposed Reforms

• Published date: 18 January 2021
• Subject Matter: Employment and HR, Contract of Employment, Employee Benefits & Compensation
• Law Firm: Walker Morris
• Author: Ms Rebecca Jackson

Rebecca Jackson highlights proposed reforms to the law surrounding post-termination non-compete clauses in employment contracts, and considers what any changes might mean for employers.

Proposed reform: What employers need to know

Following termination of their employment, ex-employees often have the opportunity to utilise confidential information, strategic plans, customer/client details or other important information relating to the employer's business, to benefit a new or rival business. It is therefore common for employers to include, in the contract of employment, express contractual terms with a view to preventing employees from disclosing confidential information, competing, soliciting clients and poaching employees. Such provisions are often referred to as restrictive covenants or post-termination restrictions.

In December 2020 the UK Government announced that, to support economic recovery following Covid-19, it is exploring ways to boost innovation, facilitate the creation of new jobs, and increase competition. The Government stated that post-termination non-compete clauses can act as a barrier to competition and entrepreneurial new business and it is therefore consulting on two key proposals:

1. A requirement for employers to pay compensation to ex-employees for the duration of any post-termination non-compete clause. Any such measure may be complemented by a requirement for employers to disclose the exact terms of a non-compete clause to a new employee in writing before they enter into the employment contract, and putting into place statutory time limits on non-compete clauses.
2. Banning post-termination non-compete clauses altogether.

The consultation, which seeks views from all interested parties from entrepreneurs and start-ups to large, multinational businesses, trade bodies, HR professionals and individual employees, also asks whether similar reform should be applied to other types of post-termination restriction, such as non-solicitation, non-poaching clauses and the like.

The consultation is open until 26 February. Full details, including information as to how to respond, can be accessed here.

What might proposed changes mean for employers?

The common law of England and Wales already contains the significant safeguard that restrictions are only enforceable where they go no further than is reasonably necessary to protect an employer's legitimate business interests...