The Competition and Markets Authority have reported that over 25% of workers have a non-compete clause in their contract

You will be surprised at the number of employees who only realise that their employment contract contains a non-compete clause after they leave their current employment to move to a new job. Joanne Briscoe, Associate Solicitor in our Employment team, looks at what a non-compete clause is, why these are put in place and what these can mean for the employee and for their future employers.

A non-compete clause stops an employee working for a rival business or setting up a business in competition for a set period of time after their employment ends. The intention is to protect the business of the employer. However, such clauses can also make it difficult for an employee to switch jobs.

On 25 January 2024 the Competition and Markets Authority (CMA) published a report on “Competition and market power in the UK labour markets” and one of the areas that it looked at was non-compete clauses in employment contracts.

The report found that: “Roughly 26% of workers are covered by non-compete clauses specifically;” and

 “While such clauses are more common in managerial and scientific occupations, they are found across all occupations and industries, and across the whole income distribution”.

Non-compete clauses are often justified as being required to protect confidential information and to deter employees from leaving after a business has invested time and money training them. An employer will be reluctant to invest in training an employee if they could immediately take their skills to a competitor. However, the report found that these clauses were also prevalent in industries such as retail, education and food services where there was no apparent need for a non-compete clause or where employees did not receive a high level of training.

Joanne Briscoe associate solicitor at Wilkes comments that:

“These clauses can prevent employees switching jobs and talent moving between rival businesses”.

In her speech accompanying the report Sarah Cardell, the Chief Executive of the CMA commented that:

“Law and policy on non-compete clauses may need updating”.

Last year the government made proposals to limit the period of a non-compete restriction to 3 months. This seems to be supported by the CMA with Sarah Cardell commenting that: “Our evidence supports this direction of travel”. However, a date for the legislation to be introduced has not yet been set.

Until the legislation is introduced Joanne advises employees to:

 “Check their employment contracts when they are offered a job and query why a post-employment non-compete clause is needed. They could ask their new employer for such clause to be removed, reduced in length or limited to certain named rival businesses.

If an employee only discovers the non-compete clause after they have left their job, they need to ensure that they are not in breach of the clause and if in doubt they should take legal advice. Non-compete clauses will only be enforceable if they go no further than reasonably required to protect a legitimate business interest”.

When an employee leaves their employment the employer should refer them to any post -termination contractual obligations in their employment contract including any non-compete clauses to ensure that they are aware of the restrictions.

When taking on a new employee it is important that an employer is confident that their new employee will not be in breach of a non-compete clause by working for their business. Otherwise, the new employer faces the risk that the restrictions could be enforced by a court and this could also make them vulnerable to court proceedings for inducing their new employee to breach their previous employment contract.

Employers should be checking that their contracts contain a wide range of protection so that they can future proof against new legislation limiting the scope of these non-compete clauses. If the period for a non-compete clause is reduced employers can still adequately protect their interests by the use of other post termination restrictions and obligations, confidentiality and intellectual property clauses and longer notice periods.

For more information or to speak to someone regarding non-compete clauses, please contact Joanne Briscoe, Solicitor in our Employment team on 0121 733 8000 or via email at [email protected].