Limit of 3 Months on Non-Compete Restrictions in Employment Contracts?

Post-termination restrictions (also known as restrictive covenants) are often found in employment contracts and seek to prevent employees from carrying out certain activities once their employment has ended.

Examples of such activities include taking clients or employees from their former employer and working for competitors for a period of time after their employment ends. Such post-termination restrictions can be invaluable to employers in protecting the interests of their business.

In May 2023, the Government announced its intention to introduce new legislation to limit the length of non-compete restrictions to 3 months. Such restrictions prevent an employee from working for a competitor or setting up in competition with a former employer.

At present, it is not unusual to see non-compete restrictions of 6 to 12 months in duration. The Government have said that such restrictions can inhibit workers from looking for better paying role and limit the ability of businesses to compete and innovate. The Government also says the reduction in the non-compete restrictions will give employees more flexibility to join a competitor or start up a rival business after they have left a position. They consider that the change will also provide a boost to the wider economy.

The Government’s press release makes it clear that limiting non-compete clauses will not interfere with the ability of employers to use paid notice periods or gardening leave, or to use non-solicitation clauses and will not affect confidentiality clauses. There is no mention of non-dealing clauses.

The press release does not specify when the new legislation will be introduced and simply says when time allows. Once introduced, employers will need to review employment contracts and limit the duration of non-compete restrictions accordingly.

It is worth remembering that the only types of post-termination restrictions that are enforceable are those that protect a legitimate business interest. If yours does not, it is likely to be seen as restraint of trade, and therefore not enforceable.

Restrictions must be drafted carefully so that they take into account the specific role of the employee and your particular business. You should also ensure that you regularly review your post-termination restrictions, especially in the event that an employee is offered a role in a more senior position.

If you require any advice on the drafting of employment contracts or enforcing post-termination restrictions, please contact Farleys’ employment team on 0845 287 0939 or contact us by email through our online contact form.