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Are post-termination restrictions going to be curbed?

Posted
June 16, 2023
Employment Law

In January 2021, we reported on government plans to regulate the use of post-termination restrictions in employment contracts. So what more have we learnt from a recent government announcement?

What’s the background?

Employers invest considerable time and money in building up and protecting valuable banks of confidential information, as well as developing close and effective business relationships with their trading partners (especially their customers or clients). These ‘business interests’ may be put at risk if key employees leave their employment with a view to joining a competitor or setting up a rival business of their own.  

Our courts have long acknowledged that employers have a legitimate right to protect their business interests by including post-termination restrictions in their contracts of employment. These restrictions typically seek to restrict the employee’s ability to unfairly compete with their former employer for a period of time after they leave their employment. The problem, for both employer and employee, is that there can be considerable uncertainty as to precisely when a court will uphold such restrictions and when it won’t. These restrictions are also seen by many to be anti-competitive; unfairly restraining employees and preventing them from moving freely between employers. With this in mind, back in 2021, the government engaged in a consultation process in which it sought people’s views on the prospect of more directly regulating post-termination restrictions. In particular, the consultation document asked the question as to whether there could or should be a complete ban on non-compete clauses.  

So what’s happening now?

‍Two years on from the original consultation, the government has recently confirmed that, when parliamentary time allows, it intends to change the law to limit the length of non-competition clauses to a maximum of 3 months. This would represent a very significant change in the law. 

The government claims the change in the law could benefit both businesses and employees.  Employees (up to 5 million of them) will have greater freedom to change jobs and seek higher pay. Employers, apparently, can look forward to a wider talent pool from which to draw new recruits.

What do you think?

What are your thoughts about this development? Do you see it as a ‘win-win’? Alternatively, are you worried about your ability to adequately protect your business from unfair competition in the future? Will you need to take this into account when drawing up the restrictive covenants for your new employees?  

If you would like to discuss this with us in more detail, please get in touch.

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