Between December 2020 and February 2021, the Government is consulting on the inclusion of non-compete and exclusivity in employment contracts. The review is part of a drive to boost the country’s economy following the Covid-19 crisis. The Government cites California, where non-compete clauses are not allowed and Israel, where the use of such clauses is very restricted; both states are considered to be entrepreneurial and leaders of innovation. The Government is therefore looking to see whether a change to our current of use of these clauses would help drive business growth and, if so, how should the current system be changed?
Both clauses are part of a series of measures known as ‘restrictive covenants’ which are designed to protect the interests and continuation of the business when an employee leaves by temporarily restricting the activities of the departed employee. Unlike parliamentary originated laws written in acts and regulations, restrictive covenants have been developed over the years by a series of court cases. They should be no stricter than is required to protect the legitimate interests of the business and balance the interests of the business against the ability of the departing employee to earn a living.
Non-compete clauses may, for example, impose timed restrictions on the geographical area that an ex-employee can work, the type of work they cannot do or the genre of company they cannot work for. How could they be changed to make business environments more competitive and entrepreneurial? The Government has suggested four possible options:
- The employer should provide compensation to a former employee during the period of restriction (to dissuade employers from using such a clause unless absolutely necessary);
- Put statutory time limits during which such clauses can operate;
- Ensure companies disclose their non-compete clauses to prospective employees; or
- A total ban on their use.
Exclusivity clauses prevent an employee working for more than one employer and are already banned in zero-hour contracts, but the Government is now looking specifically at the 1.8m people who are on minimum wage levels and are earning less than £120 per week. A contractual exclusivity clause would prevent people in this group from being able to earn money with another employer and restrict the potential pool of applicants for those businesses which could expand by taking on more part-time staff. Banning such clauses for this group could benefit both the employees and those businesses who need a more agile and flexible workforce.
We await the outcome of the review with interest.