Government places new limits on non-compete clauses

The government is considering major changes to the rules governing non-compete clauses, raising the possibility of new restrictions on how employers prevent staff from moving to rival organisations.

A policy paper released alongside the recent budget highlights concerns that non-compete clauses can hinder the movement of workers and slow the spread of expertise across industries.

To address this, officials are exploring several potential reforms, including capping the length of non-compete periods at three months, limiting their use for lower-paid roles, tying their availability to employer size, or introducing a full prohibition similar to measures in parts of the United States.

Another option under review combines approaches, restricting non-compete use for employees below a defined salary threshold while placing time limits on clauses applied to higher-paid staff.

It is estimated that about five million workers in the UK currently have a non-compete clause in their contract, typically lasting around half a year. Although these provisions are only enforceable if they are reasonable, the government notes that many workers comply automatically out of concern about possible legal action.

Reform, it argues, could help open the labour market, support new businesses in recruiting talent, and enhance competition.Experts say that limiting or banning non-competes could have differing effects across the workforce.

For employees, greater freedom to move between organisations could lead to better career matches and potentially higher pay. Reducing the deterrent effect of broad or ambiguous clauses may also empower workers to challenge terms that may not be legally enforceable.

However, employers might respond by restricting access to commercially sensitive information, scaling back costly training, or revising incentive schemes to protect their interests. Smaller organisations could be particularly exposed if staff leave with vital knowledge or client relationships.

While many companies use non-compete clauses responsibly, clearer rules could help both sides understand what is acceptable and avoid unnecessary court battles.

The government is gathering views until early 2026, leaving businesses time to review how they use restrictive covenants. 121 HR Solutions will automatically discuss this important subject with HR Business Partnership clients as and when any change is announced. To discuss the 121 HR Solutions retained service, contact us at enquiries@121hrsolutions.co.uk.

Government places new limits on non-compete clauses

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