The Department for Business and Trade has published a consultation and working paper on proposed reforms to non-compete clauses in employment contracts. The consultation presents various options, which range from limits on the duration of such clauses to partial or full bans, and notes that limiting non-competes may cause employers to rely more heavily on other types of post-termination restriction.
Background
A non-compete clause seeks to limit an employee's ability to work for, or establish, a competing business after they leave their employment. Currently, as restraints of trade, such clauses are unenforceable as a matter of public policy unless they are reasonable, i.e. they go no further than necessary to protect the employer's legitimate business interests. Litigation to enforce non-compete clauses must be brought in the High Court and is typically complex, time consuming and expensive.
Reasons and objectives
The consultation notes the government's concern that even though many non-compete clauses that are included in employment contracts are likely to be unenforceable, they could still have a deterrent effect, potentially restricting job mobility, putting downward pressure on wages, acting as a brake on entrepreneurial activity, and making it harder for new and small businesses to grow.
The government's objectives in any reform of non-compete clauses would be to boost labour market dynamism, reduce barriers to recruitment, promote competition and innovation, and protect workers from facing long periods out of the labour market or being unable to afford to move jobs.
Options for reform
The consultation seeks views on the following possible options for reform:
- Statutory limit on duration: The consultation puts forward potential limits ranging from 1 to 12 months. It notes a risk that any statutory limit could be viewed as an 'industry standard that is assumed to be reasonable and enforceable'. To counter this, clear guidance would be needed, specifying that the public policy principle that any restraint of trade will only be enforceable if it is reasonable continues to apply.
- Statutory limit on duration depending on company size: An alternative possibility put forward in the consultation is to apply different limits on the duration of non-competes based on company size. For example, 3 months for employers with more than 250 employees, and 6 months for those with fewer than 250 employees. This would provide greater protection for smaller companies, benefiting start-ups and scale-ups. The existing public policy principle would continue to apply.
- Complete ban: Making all non-compete clauses in employment contracts unenforceable is put forward as an option to support worker mobility and boost labour market dynamism. This could benefit workers if employers sought to use positive incentives to improve retention. However, employers might instead strengthen their use of other post-termination restrictions, and the government would need to ensure that this did not undermine the effectiveness of the ban. Notably, the consultation questions ask whether any restrictions should be limited to non-compete clauses only or should also apply to other post-termination restrictions.
- Ban below a salary threshold: Providing for non-compete clauses to be unenforceable for workers earning below a particular salary would protect low paid workers who are not in a financial position to challenge the enforceability of such clauses in the courts, and are less able to negotiate their removal from contracts at the start of employment. Drawbacks may include difficulties calculating pay, disputes as to what should be included in pay calculations, and employers factoring the enforceability of non-competes into decisions around pay rises.
- Combined ban below a salary threshold and 3 month limit on duration: The consultation states that this option would eliminate non-compete clauses for lower paid workers, but also soften the cliff edge effects of a ban below a salary threshold alone, as non-compete clauses above the threshold would be limited to 3 months.
It is notable that the consultation does not put forward the option of requiring employers to pay employees for the duration of any non-compete restriction. This is the approach taken in certain European jurisdictions such as France, Italy and Germany, and we have heard anecdotal evidence of similar provisions being included in non-competes in the UK in order to improve the chances of enforceability.
The consultation also refers to the current high costs of enforcement of non-compete restrictions via High Court litigation. It seeks evidence on whether the threat of such costs presents an obstacle to bringing claims, and views on the most appropriate response if this is the case.
What does this mean for employers?
Employers are encouraged to contribute to the consultation, to ensure that the government is aware of the importance of non-competes and other post-termination restrictions, especially in sectors where there is a real danger of highly skilled and highly paid former employees making use of specialist and confidential information to benefit a competitor.
The consultation closes on 18 February 2026, after which the government is expected to consider responses and formulate draft legislation. It is therefore likely to be some time before any statutory restrictions on non-compete clauses actually take effect.
Working paper on options for reform of non-compete clauses in employment contracts
