On the 4th December 2020, the Government launched a consultation on whether their needs to be reform of non-compete clauses contained in contracts of employment, and even on whether they need to be abolished altogether. The consultation closes on the 26th February 2021.
Non-Compete Clauses
It is part of the implied duty of fidelity contained in all contracts of employment, that the employee must not compete with their employer, and must serve their employer with good faith, loyalty, and with regard to the employer’s best interests. However, the implied duty of fidelity does not extend to the period post termination of employment. Hence, should an employer wish to limit the extent to which the employee can work for a competitor for a period of time (usually between 3-12 months) post termination of employment, then an express non-compete clause will need to be included as a restrictive covenant within the employee's contract of employment.
Employers should exercise caution when drafting non-compete clauses, as should they be drafted too widely in a manner that goes well beyond just protecting the employers legitimate business interests, then the employer runs the risk that the non-compete clause constitutes a restraint of trade, and of being declared void and unenforceable.
The Consultation
The Government last looked at the issue of post-termination non-compete clauses back in 2016, but on that occasion decided to take no action whatsoever. At the time, the Department for Business, Energy and Industrial Strategy (BEIS) took the view that: "Common law has developed in this area for over a century and is generally acknowledged to work well. Having built up a picture of the UK experience via this call for evidence, we have decided it is not necessary to take any further action at this stage."
Nevertheless, the COVID-19 pandemic and the economic fallout from the same has led to the issue of non-compete clauses being looked at again as part of the Government's "build back better" plans, with the Government launching a new consultation on the 4th December 2020.
In launching the consultation on non-compete clauses, the Government state that: "To support economic recovery from the impacts of COVID-19, the government is exploring avenues to boost innovation, create the conditions for new jobs and increase competition." Indeed, the Government are looking to promote a more entrepreneurial culture, particularly in the area of the next generation of emerging technologies, such as advanced robotics, artificial intelligence, the Internet of Things, 3-D printing, automation, and blockchain. Hence, the review into non-compete clauses, given that they represent a barrier to competition, with the Government taking the view that reform of non-compete clauses could help to nurture more start-up businesses.
As part of the consultation, the Government is looking at whether employers should be required to pay the employee during the period of the non-compete clause (potentially "complemented by additional transparency measures and statutory limits on the length of non-compete clauses"), and whether non-compete clauses should be abolished altogether by rendering their presence in any contract of employment automatically void and unenforceable. The Government believe that the former would have the effect of not only compensating employees who are prevented from working in their own profession for a period by the non-compete clause in their contract, but of also deterring employers from imposing "unnecessary" non-compete clauses upon their employees.
At present, in Germany, Italy, and France, employers must compensate employees for the duration of any non-compete clause.
The consultation closes on the 26th February 2021.
Reaction
The then Secretary of State for Business, Energy and Industrial Strategy at the time of the consultation launch, Alok Sharma, stated: "We want to ensure every worker has the freedom and flexibility to work in the way they want, where they want – whether that’s topping up their pay packet by taking on additional work, or being able to start their own business with the skills they’ve gained throughout their career. [We take] another step on our path to making sure the UK is the best place in the world to work, start and grow a business as we build back better from the pandemic."
The director of policy at the Association of Independent Professionals and the Self-Employed (IPSE), Andy Chamberlain, states: "It is a welcome step in the right direction that the government is consulting on ways to crack down on restrictive contracts. Paring back restrictive contract features such as exclusivity and non-compete clauses should, we hope, help open up opportunities for the self-employed and support them in adapting to these challenging times."
