The end of non-compete post-termination restrictions?

Post-termination restrictions are commonly found in contracts of employment for senior individuals.

Restrictive covenants are prima facie void as an unlawful restraint of trade and are therefore only enforceable if they go no further than is necessary to protect the legitimate business interests of the party seeking to enforce them.

In this context recognised ‘business interests’ include:

• Trade connections (including the relationship with customers and workforce)
• Trade secrets and confidential information.

Courts may be open to the possibility of arguing other interests, however the likelihood of success of such an argument is not clear. The prevention of competition has been held to not be a legitimate interest worthy of protection.

If there is a legitimate business interest to protect, the restriction will only be enforceable if it is no wider than is necessary to protect that interest. The covenant must not only be limited to what is necessary in terms of the restricted activities themselves but should also apply for a limited time and (if appropriate) within a limited geographical area. If the covenant is too wide, it will be void.

The “non-compete” covenant prevents an employee acting in competition with their ex-employer, therefore it is the most restrictive covenant and the most difficult to enforce.

The previous government undertook a consultation on the reform of non-compete clauses in employment contracts. In May 2023 the Conservative government responded to the consultation, confirming its intention to introduce a statutory cap of three months on non-compete restrictions in employment and worker contracts.

The previous government confirmed that the proposed reforms would not affect confidentiality provisions and non-solicitation or non-dealing of clients/customer restrictions. It also ruled out the possibility of employers being required to pay mandatory compensation for the duration of the enforcement period of non-compete restrictions.

Labour’s employment law reform proposals do not refer to non-compete restrictions and there was no mention of such changes in the recent King’s Speech, however, this change could be considered low-hanging fruit for a government that has confirmed its intention to strengthen worker’s rights.

Notwithstanding the uncertainty following the change in government, employers should be aware that any non-compete restrictions over three months may at some point in the future become void, limited in scope/length and/or be deemed unenforceable.

Employers who wish to protect their business interests should ensure that they have adequate restrictive covenants in place. Whilst there is some uncertainty in respect to of the non-compete covenant, employers can take steps to ensure that all other covenants are adequate.

If you require assistance with drafting, enforcing or determining the scope of post-termination restrictions, our employment team have significant experience in this area and can provide the necessary advice.