Government proposal to limit non-compete clauses

Post-termination restrictive covenants are often inserted into the contracts of senior employees.

The aim is to protect the business by preventing the outgoing employee from interrupting the flow of business. This can include not going to a competitor or, if going to a competitor, not interfering with clients or suppliers of their old employer.

The Government is now proposing to introduce new legislation which will restrict the duration of non‐compete restrictive covenants to a maximum of three months.

The recent announcement confirms that employers will still be able to restrict competitive activities during any period of notice, including notice spent on garden leave, but once employment has terminated a post-termination restriction will only be able to apply for a period of three months.

The law will not affect non-solicitation clauses and will only apply to non‐compete clauses.

It is not known when this new legislation will be implemented, but it is likely to spark a requirement to review all contracts of employment once the legislation is passed to ensure they are compliant with the new requirements.