Restrictive Covenants – Possible Changes Ahead?

On 26 February 2021, the Department for Business, Energy & Industrial Strategy will close its consultation on "measures to reform post-termination non-compete clauses" in employment contracts.

Whilst covenants and the doctrine of the restraint of trade are hotly contested battle grounds in the UK Courts, the UK does not currently have any statutory provisions in place governing these clauses. The consultation paper suggests this may change, and asks for views on two possible options, which could have serious repercussions for employers and employees alike. In brief, these are:

1. the need for an employer to continue paying an employee during the period of their post-termination restrictions for those restrictions to be enforceable; and
2. more radically, banning any form of post-termination restrictions.

The second option seems unlikely to gain much traction, however, there is a possibility that the first might; especially as this mirrors the approach to covenants in some EU countries (perhaps an ironic change as Brexit looms). The Government's view on the option to pay employees during any restricted period is that this would "discourage widespread use of non-compete clauses by employers so that individuals have the freedom and flexibility to use their skills to drive our economic recovery". The consultation paper also suggests that a time limit on the length of non-competes is also being considered, and gives an example of six months.

Whilst this is not the first time the Government has asked for views on this topic, it will certainly be interesting to keep a close eye on the progression of this consultation. With Brexit in the pipeline and the ongoing uncertainty that COVID brings, UK businesses will undoubtedly be looking at ways to ensure that their business continues to be as competitive as possible. However, having to pay employees during any restrictive period could make the market even less competitive. Whilst the biggest players in the market may have the means to protect their business relations and confidential information, smaller businesses could again lose out.

We will provide further updates once the outcome of consultation is known.

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