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Non-Compete Clauses

The government has opened a consultation on measures to reform post termination non-compete clauses in contracts of employment. The consultation closes on 21 February 2021.

The purpose of the consultation is part of the government’s effort to explore ways in which to ‘create the conditions for new jobs and increase competition’.

According to the report, “the Government is exploring avenues to boost innovation through the diffusion of ideas, create the conditions for new jobs and increase competition. Non-compete clauses can act as a barrier by preventing individuals from working for a competing business, or from applying their entrepreneurial spirit to establish a competing business. We want to maximise opportunities for individuals to start new businesses, find new work and apply their skills to drive the economic recovery”.

The options the consultation is considering are mandatory compensation or banning non-compete clauses. If either were to be implemented, this would of course be quite a change from the current position. There is of course currently no statutory framework regarding non-compete clauses.

Mandatory compensation

This option would require employers to provide mandatory compensation to the employee in order to make a non-compete clause valid. The compensation would be for the duration of the defined period of the clause.

Banning non-compete clauses

The alternative position is to ban the clauses entirely to increase competition and innovation. It would have arguably greater certainty although the scope of the ban and any exemptions would need to be carefully defined. The consultation cites examples such as California and Israel, home to innovative and entrepreneurial economies where such clauses are void (California) or limited (Israel) regardless of reasonableness.

Opinions are sought on both options, and a number of questions are raised, not least that there is recognition that non-compete clauses exist in part to protect legitimate business interests.

Posted on 02/11/2021 by Ortolan

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