Consultation on Non-Compete Clauses

In an attempt to support the economic recovery from the impact of coronavirus, the Department for Business, Energy and Industrial Strategy (BEIS) has launched two consultations. They are looking for responses in respect of proposals to reform post-termination non-compete clauses in contracts of employment and on extending the ban on exclusivity clauses in contracts of employment.

Non-compete clauses are used in contracts of employment to restrict an individual’s ability to work for a competing business, or to start a competing business after resignation. To enforce a restrictive covenant, the clause must be “no wider than is reasonably necessary to protect the interest of the company”.

The constraint on the employee must not be permanent and employment tribunal judges usually consider that six months is long enough. It must also only cover a reasonable geographical limitation.

The purpose of the consultation, which is open for comments until 26 February 2021, is to seek views on the following.

· Making non-compete clauses enforceable only when the employer provides compensation during the term of the clause

· Requiring employers to disclose the exact terms of the non-compete agreement to the employee in writing before they enter into the employment relationship.

· Placing a statutory limit on the length of non-compete clauses.

· Banning non-compete clauses altogether by making them unenforceable — potentially raising the need for other post-termination restrictions to be made tighter.

BEIS has also invited comments on a proposal to extend the ban on exclusivity clauses to contracts where the workers’ guaranteed weekly income is less than the Lower Earnings Limit, currently £120 a week. The intention is to allow low-income workers who are not able to secure the number of hours they would like from their current employer to seek additional work elsewhere. Previously, exclusivity clauses have been banned from zero hour contracts in order to enable workers to seek paid work elsewhere if the company is not in a position to offer this to them.

The responses to this consultation, which is also open for comments until 26 February 2021, will help inform decisions on detailed policy questions such as the appropriate level to set the earnings threshold and the appropriate level of hourly wage cap for which an exemption to the ban may be warranted.

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