A Case for Reform? New Working Paper on Non-Compete Clauses Published

Background

This is not the first time the Government has looked at implementing legislation to limit the use of post-employment non-compete clauses. As we discussed here, the previous Conservative Government consulted on reforms to non-compete clauses, intending to introduce legislation limiting non-compete periods to three months, but ultimately this did not go any further.

The current Labour Government previously remained silent on the issue of non-competes… until July 2025, when during a House of Lords debate on the Employment Rights Bill (now the Employment Rights Act 2025), the issue of reform of non-competes in employment contracts was put back on the table, with concerns being raised that non-competes can stifle “innovation, competition and the free flow of ideas.”

It therefore comes as no surprise that the Government has now launched its working paper seeking views on options for reform of non-compete clauses in employment contracts.

In Detail

Currently, there is no ban on post-termination restrictions (including non-compete clauses) in UK law, although the starting point is that restrictions are void as a restraint of trade unless the employer can show that the restrictions go no further than reasonably necessary to protect legitimate business interests. The enforceability of any non-compete is assessed by the courts and requires a consideration of various factors, one of which is the duration of the restriction. Many employers include post-employment restrictions, including non-competes, in employees’ contracts as a legitimate way to safeguard confidential business information and to maintain stability in their workforce.

However, the working paper puts forward the Government’s case for reform. It explains that the Government is concerned about the ‘behavioural effect’ of non-compete clauses that are potentially unenforceable being included in employment contracts as a matter of course, and considers that non-compete clauses contribute to limiting worker mobility, acting “as a brake on entrepreneurial activity” and restricting competition. In the alternative, it also notes that non-compete clauses can incentivise employers to share access to valuable information and invest in innovation activities. The objectives for reform include boosting labour market dynamism, reducing barriers to recruitment, promoting competition and innovation and protecting workers so they do not face extended periods of time out of the labour market.

The Government’s working paper therefore proposes various options for reform of non-competes, as follows:

• Introducing statutory limits on the length of non-compete clauses. The Government considers introducing a cap of on non-competes, which could be shorter or longer than the three months proposed by the previous Conservative Government’s consultation. It should be noted that the introduction of a cap would not result in the automatic enforceability of non-compete clauses that are at or below the cap; the Government cautions that all non-compete clauses would still be subject to the current test of enforceability (i.e., whether the restriction goes no further than reasonably necessary to protect legitimate business interests). 
• Introducing statutory limits on the length of non-compete clauses based on company size. Under this two tier approach, companies with more than 250 employees could be limited to three-month non-compete periods, while smaller companies (i.e., those with less than 250 employees) could have a cap of six months (again, subject to the current test of enforceability in both cases). The Government hopes this approach would promote competition, allowing employees of larger businesses to move to competitors, while supporting small businesses (and potentially permitting them to use longer non-competes where reasonable) to “retain talent at a critical stage in their growth journey.” 
• Banning non-compete clauses in employment contracts. This follows the approach taken in some global jurisdictions (e.g., California), with the aim of increasing worker mobility and competition. Under an absolute ban, employers may turn to alternative methods to retain staff, including retention bonuses or increased pay etc, or alternatively seek to rely on longer contractual notices or garden leave periods.
• Banning non-compete clauses below a salary threshold. Some US jurisdictions have introduced salary thresholds for the use of non-compete clauses (e.g., Maryland and Maine), and this approach is proposed to take effect in Australia (in which a salary threshold of AUD 175,000 – approximately GBP 87,000 – has been suggested). However, the Government notes that difficulties regarding how to calculate pay (which is already a tricky area of law) may hinder this proposal. It is also noted that the introduction of a salary threshold may result in creating “cliff edges” around certain salary levels.
• Combining a ban below a salary threshold with a statutory limit of three months for those who earn above the threshold. A combined approach is also being proposed, in the hope that the potential downsides of introducing salary thresholds (see comments above) are softened by a general limitation of three months on non-compete periods.

In addition to the above, the consultation asks the following:

• Whether there are any obstacles to workers defending claims to enforce restrictive covenants, including non-compete clauses, in the courts. Litigating on the enforceability of post-employment restrictions is often expensive, and takes place within the High Court, a costs jurisdiction (in which the loser generally bears the winners costs), which may mean workers feel forced into complying with unenforceable clauses because they are unable to afford resisting a claim against them. In practice, the high costs associated with this form of litigation generally limits its use and the Government is therefore seeking views on potential alternatives;
• Whether any restrictions should be limited to non-compete clauses only or should also apply to other restrictive covenants (e.g., non-dealing clauses); and
• Whether any restrictions should be limited to employment contracts or whether they should be applied to wider workplace contracts.

Global Trends

The UK continues to follow wider global trends in this space. As discussed above, certain US states have banned the use of non-compete clauses in employment contracts entirely (e.g., California, Minnesota, North Dakota and Oklahoma), while others have imposed salary thresholds prohibiting the use of non-competes for low-earning employees (e.g., in Maryland, those earning less than 150% of Maryland’s minimum wage rate). Salary thresholds have also been proposed in Australia and are already in effect in Austria and Luxembourg.

A nationwide ban of non-compete clauses was previously considered in the US. The Federal Trade Commission (‘FTC‘) published a final rule that was set to go into effect in September 2024 to ban all non-competes with limited exceptions, but this was ultimately blocked by a Texas court in August 2024 (see our articles at the time here and here). Though the FTC initially appealed that decision, it abandoned its appeal in September 2025, announcing that non-compete restrictions will continue to be reviewed for enforceability on a case-by-case basis (subject to state-specific regulations) (see our article here).

Clearly, the challenges faced by the previous UK Government and as seen in the US reveal the complexities around implementing legislation regarding non-competes (in particular, in light of the impact any ban or limitation would have on businesses and their concerns regarding confidentiality). However, considering the Government’s “commitment to a dynamic labour market” that enables the UK to “seize the opportunities of employment” and broader momentum internationally, we anticipate that legislative change in the UK is a real possibility with which employers will be required to eventually grapple.

Next Steps

The working paper does not provide any indication of a timeline for any proposed legislation. Given the Government is directing substantial attention at present to the Employment Rights Act 2025, it may be some time before it can shift its focus to reform of non-competes. That being said, this remains a key area for employers to track as any legislative changes may require changes to contractual documents and workforce practices. Employers may also see an uptick in the number of employees challenging their non-compete clauses (and any other post termination restrictions) as this area develops. We will keep you updated as this consultation progresses.