UK government launches consultation on options for reform of non-compete clauses in the UK

The UK government has published a working paper inviting views on options to reform non-compete clauses in employment contracts.

Background

The reform of non-compete clauses is back on the political agenda. The previous Conservative government planned to introduce a statutory cap of three months on non-compete clauses in employment contracts, but no action was taken before the July 2024 general election. Non-competes were not mentioned as part of Labour's 'Plan to Make Work Pay' and so we have been waiting to see if the Labour government would revisit non-competes.

The working paper highlights analysis that suggests that non-compete clauses are widely used across the labour market, with around five million employees in Great Britain working under a contract that contains a non-compete clause with a typical duration of around six months. The government raises concerns about non-competes restricting job mobility, entrepreneurial activity and competition. The government also highlights that non-competes are common among lower-paid jobs and even if non-competes are unenforceable, their presence can deter employees from moving jobs, given the risk of legal challenge.

Proposals

The proposals under consideration are:

• Statutory limit on the length of non-compete clauses: this could be shorter or longer than the three-month period proposed by the previous Government.
• Statutory limit on the length of non-compete clauses according to company size: different statutory limits could apply according to company size. One scenario might be that, for companies with more than 250 employees, the statutory limit for non-compete clauses could be three months, while for companies with fewer than 250 employees, the statutory limit could be six months.
• Ban on non-compete clauses in employment contracts: under this approach, non-compete clauses in employment contracts would be unenforceable.
• Ban on non-compete clauses below a salary threshold: under this approach, non-compete clauses would only be enforceable if the employee earned over a particular salary. One scenario might be to set the salary threshold at the additional rate tax threshold of £125,140 (frozen yesterday until March 2031).
• A hybrid of a ban below a salary threshold and a statutory limit of 3 months.

The consultation is also considering whether the limitations should be applied to "wider workplace contracts", which could include shareholder agreements, equity incentive award documents and LLP agreements.

Our view

The consultation period is open until 18 February 2026, however no timescales for implementation are mentioned in the working paper. We therefore do not expect that companies will make significant changes in the short term. Companies may nevertheless want to review their existing post-termination restrictions in the light of the proposals. It is clear that non-compete reform crosses the political divide and so we expect to see movement in this area.

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