Restrictions on non-competes

The Government has announced that it will legislate to limit non-compete restrictions in employment contracts to 3 months' duration.

Of the post-termination clauses typically included in employment contracts, non-competes have the harshest impact on an employee, as they may prevent them working in their chosen field altogether. The courts scrutinise these clauses carefully and employers looking to enforce them need to provide persuasive evidence of why they are necessary (and why lesser restrictions, such as on soliciting and dealing with key clients, will not adequately protect the business). 

The Government's consultation had previously looked at banning them altogether, or requiring the employer to pay the employee during the non-compete period. But it has announced that it intends to legislate to restrict the length of non-competes in employment contracts to 3 months "when Parliamentary time allows".

Employers will need to consider how to protect their business interests by the use of gardening leave during notice periods, and well drafted non-solicitation, non-dealing and confidentiality clauses.  They should review their contracts to see if those need updating.

The stated goal of the proposal is to remove barriers to innovation – the unenforceability of non-competes in California is often cited as a factor behind Silicon Valley's success. But reform carries the risk of unintended consequences. Many employers will opt for longer notice periods instead, with the option to put the employee on garden leave, which would do little to promote innovation and healthy competition. 

Employers should think about what measures they can put in place to protect their business interests.  Adopting the old adage that prevention is better than cure (or at least should be the starting point), employers should also consider tighter controls over confidential information and stricter rules on use of personal devices for handling client communications.