Understanding a 6 month non-compete clause in the UK

Non-compete clauses have long been a way to protect your business from the risk that an ex-employee will spill your commercial secrets.

Post-termination clauses, also called restrictive covenants, are often a part of the contract of employment. They dictate specific actions your staff member agrees to take after their employment with you ends, which can be pursued through the courts if the agreement is broken.

But a recent government consultation into reforming this aspect of employment law may be about to make considerable changes to these safeguards.

Anticipated changes to non-compete contract conditions

The consultation closed in February 2021 and is part of an initiative to stimulate economic growth and competitiveness in the post-pandemic economy.

Ministers asked for opinions on:

  • Making a 6-month, non-compete clause UK enforceable only if the ex-staff member is compensated during the period
  • Changes to transparency and statutory limits on how long such a clause can last
  • Removing the legality of all non-compete clauses from British employment contracts, meaning they are no longer enforceable

The controversy around non-compete clauses isn’t anything new because there is a risk that they will stop someone from earning a living or finding gainful employment.

In niche sectors, for example, it might be impossible to comply with the terms of the clause and still take up another position with a competing business.

Alternative options to restrictive covenants

If you’re keen on a different option but still need to defend the interests of your company, there are few alternatives worth considering.

One route is to draw up legally binding contracts with post-termination restrictions that don’t go as far as a whole non-compete clause such as:

  • Confidentiality obligations – covering things like sharing proprietary information to competitors and not exposing company information into the public domain
  • Solicitation agreements – meaning your ex-employee can keep working in the same sector or even for a competitor, but they can’t poach your clients or other staff members

As with a non-compete clause, you could take an ex-employee to court if they breach the terms, looking for an injunction to prevent the individual from contravening the restrictions.

You could also pursue damages as compensation for your losses suffered.

Deferred remuneration schemes vs non-compete clauses

Deferred remuneration schemes, such as share options, are a further way to safeguard your business, similar to an LTIP (long-term incentive plan).

If you’re unsure what LTIP is used for, it’s a way to reward employees when they hit predefined targets, usually over three or more years.

In the same way, deferred remuneration reduces the risk that a staff member will launch their own business in direct competition with yours or release sensitive details to another company.

Deferred pay packages or share options are forfeited if an employee leaves in a manner that impedes your business.

Staff with deferred packages will receive their reward if they remain in employment or leave for an approved reason, such as retirement.

The future of non-compete conditions

At the moment, we can’t know with any certainty whether it will be possible to use non-compete clauses to protect your business from the actions of past employees in the future as there is a consultation for potential reform.

In the meantime, they’re a typical feature in millions of employment contracts, which are used to mitigate the risk every business takes when recruiting a new staff member.

There are alternatives, including the incentive schemes and softer contract clauses we’ve mentioned above, which are well worth exploring before any potential legislative changes occur.

For further reading, check out our article on Average settlement compromise agreement.

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