The government has taken the opportunity provided by the 2025 Budget to publish proposals on non-compete clauses in employment contracts aimed at delivering on its growth mission. Citing perceived low job mobility and innovation in the UK which constrains productivity and economic growth, the government suggests that reform of non-compete clauses could help drive change. It is hoped that reform could drive labour market dynamism, recruitment and diffusion of skills, while acknowledging that non competes can, in some contexts, support investment in training and information sharing.
The government has considered evidence collected by the previous Conservative government, the Competition and Markets Authority and from international comparators. It highlights evidence that non competes are not just confined to highly paid employees in narrow sectors. They apply also, in some cases, to low-paid employees, and can be found across all sectors of the UK economy.
Background
Back in December 2020, the then Conservative government launched a consultation on the reform of non-compete clauses in employment contracts. The consultation stated that, following the economic impact of the COVID-19 pandemic, the government was reconsidering the option of restricting the use of non-compete clauses first explored in 2016 to maximise opportunities for individuals to find work.
Eventually, in May 2023, the Conservative government published its response to the 2020 consultation which confirmed its intention to introduce a statutory cap of 3 months on non-compete clauses in employment and worker contracts and publish guidance on their use and the underlying law. It rejected both mandatory compensation and a full ban on non-compete clauses. However, these changes were not implemented before the July 2024 general election. We’ve been waiting ever since to see if the Labour government would revisit the question of non-competes, given that it was not mentioned in its Plan to Make Work Pay.
Views are sought on the following key alternative policy options:
Introducing a statutory cap on the length of non-compete clauses
The government is seeking views on an appropriate statutory cap - which could be shorter or longer than three months. Views are also sought on varying the cap by employer size. An example is given of a statutory cap of 3 months for employees of companies with over 250 employees and 6 months for companies with fewer than 250 employees.
Banning non-compete clauses in employment contracts
The government is seeking views on potential unintended consequences of banning non-compete clauses, such as strengthening the use of other restrictive covenants and an increase in the removal of deferred compensation and benefits for employees leaving to join competitors. Views are sought on whether restrictions should apply to restrictive covenants other than non-competes.
Banning non-compete clauses below a salary threshold
The government is also seeking views on banning non-compete clauses below specific salary thresholds for which it cites international precedent in Washington State. Its aim in this proposal is to eliminate non-compete clauses for lower-paid workers who may not be in a financial position to challenge these restrictions. Views are also sought on whether the restrictions proposed should be limited to employment contracts only or implemented in respect of ‘wider workplace contracts’.
A hybrid approach combining a ban below a salary threshold with a statutory limit
The government emphasises that common law reasonableness would continue to govern the enforceability of any residual clauses, and is seeking evidence on potential unintended consequences, including substitution of other restraints such as non dealing and non-poaching, tighter information controls or changes to compensation structures.
Enforcement and litigation are also addressed with questions on whether adverse costs risk in the courts deters challenges and on the accessibility of cost mitigation mechanisms such as fixed recoverable costs, legal expenses insurance and contingent fee arrangements. Respondents are asked to provide evidence on what, if any, procedural reforms might be appropriate where costs are a barrier or more generally.
The consultation is open until 18 February 2026.
Our view
In this latest working paper the government has reopened some options which seemed to have been ruled out in previous consultations. This is likely to produce a stronger evidential base for the option which is eventually chosen. Notably, however, the issue of payment for the duration of non-competes appears to have been abandoned.
Employers, employees and investors will want to consider how each option might interact with existing restraints, confidentiality and IP strategies. Employers in higher paid and more knowledge rich sectors are likely to be most impacted by the proposals.
In order to inform our response to the 2020 consultation we carried out an extensive key client survey, which we shared with the government policy team working on the consultation. The responses we received indicated clearly that employers were against an outright ban on non-compete clauses.
At this stage no timescale for these reforms is mentioned and as they would require primary legislation and the government has its hand very full with the Employment Rights Bill it seems safe to conclude that actual changes are some way off. It would therefore be premature to make any sweeping changes to existing arrangements based on this consultation alone. Today’s publication does however indicate that reform in this area is definitely back on the table so it is worth bearing in mind for future planning.
That said, we are concerned that this consultation has been launched on the basis of apparent misconceptions regarding the value and importance of non-compete clauses to those businesses which are only willing to invest in the UK on the basis that appropriate post-employment protections are enforceable and in place. This is particularly so where employees are exposed to highly valuable trade secrets and confidential information. There will of course be those employers who seek to misuse the possibility of including non-competes in employment contracts where there is no real justification or legitimate business interest to protect, but this should not result in the complete jettisoning or unreasonable restriction of legitimate post-employment non-competes.
We will be responding to the questions posed in the working paper with our detailed feedback so if you’d like to feed into our response then please get in touch with us.
You can download the working paper here.