BEIS Consultation on the Reform of Non-Compete Clauses

Last month, BEIS published a consultation regarding the use of non-compete clauses as post-termination restrictions in contracts of employment.

BEIS say the reason for this consultation is a to help boost the economic recovery following the Covid 19 pandemic. The Government is looking for ways to increase innovation and competition in the economy and believe that "Non-compete clauses can act as a barrier by preventing people from working for a competing business, or from applying their entrepreneurial spirit to establish a competing business. We want to maximise opportunities for individuals to start new businesses, find new work and apply their skills to drive the economic recovery".

There are two proposed options for reform that have been suggested as part of this consultation:

Option 1: Mandatory Compensation 
BEIS' first proposal is a requirement that the employer would have to pay mandatory compensation to their former employee for the duration of any non-compete clause following the termination of employment. The aim of this proposal is to force employers to consider whether non-complete clauses are necessary and to disincentivise unreasonably long non-compete clauses. 

As well as compensation, additional rules regarding the wording of non-compete clauses to increase transparency and a statutory maximum length for clauses of this nature have also been suggested. 

Option 2: Full Can on Non-Compete Clauses
This would effectively be a ban on non-compete clauses, and would make the situation much clearer and more certain for all parties. Under this proposal, non-compete clauses would be unlawful and unenforceable. BEIS suggests that banning these clauses could have a positive effect on innovation and competition, but also recognises there can sometimes be legitimate reasons for wanting to have a restriction of this nature.

It is important to note that the BEIS consultation only proposes banning non-compete clauses. Other post-termination restrictions such as non-solicitation clauses are not being considered at this point and would remain open.

As part of the REC’s response to this consultation we have drafted this template letter that you can send to you local MP to encourage them to reconsider the need for reform in this area