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Changes to the laws on post-termination restrictions on the way?

Posted
January 5, 2021
Employment Law

For many employers, predicting your ability to successfully enforce your post-termination restrictions can be one of the most uncertain areas of employment law. So, would clearer regulation be a welcome development?

What’s the problem?

Employers often 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).  All of this is done with a view to trading more successfully in their chosen field. These ‘business interests’ (for example, the confidential information and customer connections) may be put at risk if key employees leave their employment with a view to joining a competitor or setting up a business on their own account.  

Our courts have long acknowledged that employers have a legitimate right to protect their business interests by including post-termination restrictions in the contracts of employment of key employees. These restrictions typically attempt to restrict the employee’s ability to unfairly compete with their employers for a short period of time after they leave their employment. The problem is that whilst English courts are prepared to enforce these restrictions up to a point, if they go further than is ‘reasonably necessary’ to protect an employer’s legitimate business interests, the courts are more than willing to find them invalid and strike them down.

This all begs the question as to what will be considered to be ‘reasonable’ in any given case.  The answer is often very ‘fact-sensitive’, making it difficult for employers to know for certain whether particular restrictions will be enforceable in relation to particular employees.

Given that pursuing and defending claims of this nature can be very expensive, the position for both employers and employees can be very uncertain.

A new COVID-19 dimension?

It is well-understood that post-termination restrictions can be anti-competitive; unfairly restraining employees and preventing them from moving freely between employers. This has led the government to wonder whether, by updating the law in this area, they could boost innovation and competition (and thereby jobs), giving the economy a helping hand as it emerges from the COVID-19 pandemic.

A new approach

A consultation document, recently published by the Department for Business, Energy and Industrial Strategy, is seeking views on the prospect of more directly regulating post-termination restrictions. In particular, the consultation document asks the question as to whether there could or should be a complete ban on non-compete clauses.  

Alternatively, if an employer wishes to hold an employee to a general non-compete clause, should the employer be required to continue to pay the former employee for the duration of the restriction? Currently, the law here in England appears to state that continuing to pay employees during the restricted period is unnecessary and makes no difference to the enforceability of the restrictions. But is it possible that this could be about to change?

Want to have your say?

This is an interesting area of law and many of you may have strong views on the subject. If you would like to make your feelings known, you can find more information about the consultation process via the link below:

https://www.gov.uk/government/consultations/measures-to-reform-post-termination-non-compete-clauses-in-contracts-of-employment

The consultation remains open until 26 February 2021.

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