Non-Compete clauses – the future for employment contracts

A non-compete clause is a clause in your employment contract that precludes you from joining a competitor or setting up a business that would compete with your employer’s (or ex-employer’s).

However, no matter what is stated in your employment contract, a non-compete clause must be reasonable and only applies in cases when there is a monetary risk (i.e. a risk that your old employer will lose money). Thus, if the non-compete period is too long, or the geographical range is too wide – all of these could contribute to the non-compete clause being deemed to be unreasonable and, potentially, void.

According to research by the Department for Business and Trade, prolonged non-compete clauses negatively affect many individuals who suffer from long breaks in employment due to not having the financial wherewithal to legally challenge non-compete clauses. Also, prolonged periods of unemployment can result in some individuals being unable to meet their financial obligations and, in some cases, lead to skill atrophy.

Earlier this year the UK Government announced its intention to legislate to limit the effective period for non-compete clause to three months. By limiting non-compete clauses in this way the Government is expecting to boost the UK labour market, with the hope that it will also promote competition and innovation. Research shows that the length of the non-compete clause typically varies from one to 12 months. The Government is hoping that the proposed limitations on non-compete clauses will allow for a greater flexibility for employees.

The above changes are stated to affect those ’in contracts of employment and “limb(b)” worker contracts, i.e., contracts for services, only’.

For more information please contact Margarita Skripina.

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