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BEIS consultation on reforms to post-termination non-compete clauses – Law Society response
The Department for Business, Energy & Industrial Strategy (BEIS) asked for views on:
- proposals to make non-compete clauses enforceable only when the employer provides compensation during the term of the clause, and whether this could be complemented by additional transparency measures and statutory limits on the length of non-compete clauses
- an alternative proposal to make post-termination, non-compete clauses in contracts of employment unenforceable
We support the government’s aim to maximise opportunities for individuals to start new businesses, find new work and apply their skills to drive the economy forwards.
Making the UK the best place in the world to work and grow a business requires an approach that can balance the competing interests of factors within the economy.
Estimating whether non-compete clauses are a benefit or hinderance to the economy is not easy to do.
On one hand, non-compete clauses may inhibit the transfer of skills or the ability of a start-up to gain a foothold; on the other hand, such clauses provide a degree of security to businesses who want to prioritise long-term investments.
An individual’s interests may also change over time.
For example, an employee who wants to leave one role in order to set up their own business is unlikely to be positive about non-compete clauses. However, in a decade’s time, they may find that such clauses give their enterprise deserved protections against the value built up by the business being undermined.
The simplest way to improve the use of non-compete clauses would be if employees could get some independent legal advice when they are required to agree to a non-compete clause.
This approach has the following benefits.
- The employee would have a good understanding of what the non-compete clause means, and how enforceable it is. If the clause has been drafted too widely, the legal adviser can tell their employer that they have had advice to that effect. This should motivate both parties to agree the best possible drafting at the start of the employment relationship.
- When the employment relationship ends, both parties will have a more solid legal basis from which to negotiate a balanced exit. This is because knowledge is high on both sides as to what the non-compete clause can achieve, and the disagreements as to the agreement’s actual boundaries should be smaller.
- An increase in such practice would have a minimal impact on how the law works in this area, maintaining the relevance of current case law.
The results of the consultation are being analysed by the government. It is possible that reforms will be included in a new Employment Rights Act.