Employment law specialist Katie Maguire of Devonshires Law says the Government’s proposed restrictions on non-compete clauses may offer valuable protection for workers and startups, but English common law already places substantial limits on their enforceability.
The UK Government’s proposed crackdown on employment non-compete clauses may sound like a significant victory for workers and startups. But according to leading employment lawyer Katie Maguire, Partner and co-Head of Employment at Devonshires, the legal revolution may be rather less dramatic than the political headlines suggest.
Non-compete clauses, which restrict employees from joining competitors or establishing rival businesses after leaving employment, have long faced judicial scrutiny under English common law.
Courts generally enforce such restrictions only where employers can demonstrate that they are reasonable and necessary to protect legitimate business interests.
“The Prime Minister’s announcement today of a crackdown on, rather than prohibition of, non-compete clauses has been hailed as a move to free workers trapped in limbo. But from a legal perspective, the decision is hardly groundbreaking,” Maguire said.
Startups Could Be The Real Winners
While larger employers may be concerned about losing contractual protections, Maguire believes smaller businesses and startups could benefit considerably from the proposed reforms.
The practical problem is not simply whether a restrictive covenant is legally enforceable. It is whether an individual employee or emerging business can afford to challenge one.
High Court litigation is expensive, and even potentially unenforceable clauses can discourage employees from moving to competitors or launching their own ventures.
Maguire points to an apparent increase in High Court disputes involving non-compete provisions over recent months as a possible influence on the Government’s thinking.
“Taking realistic commercial realities into account, it is rare for startups and individual workers to have the resources or appetite to risk expensive High Court litigation,” she said.
Big Business May Be Less Enthusiastic
For larger employers, particularly technology companies and businesses dependent on commercially sensitive information, the proposals may be considerably less welcome.
Non-compete provisions can form part of a wider strategy to protect confidential information, client relationships and commercial goodwill.
Maguire suggests that the Government could pursue targeted restrictions rather than an outright prohibition.
Possible measures include limiting non-compete clauses for lower-paid employees, exempting smaller businesses or imposing a statutory maximum duration.
A cap of three to six months is among the possibilities she identifies, although the precise scope of any legislation remains uncertain.
The LawFuel Take: The Real Battle Is Over Enforcement
The more interesting question for employment lawyers may be whether statutory reform will change employer behaviour rather than simply restate existing legal principles.
English courts already have considerable powers to reject unreasonable restraints of trade. But the threat of litigation can be enough to deter an employee from leaving or a startup from recruiting valuable talent.
Legislation providing clearer limits could shift that balance.
For employers, the message is to review restrictive covenants before any reforms take effect. For employees and startups, the prospect of greater certainty may be welcome.
And for employment lawyers, the proposed crackdown could produce a fresh round of contractual reviews, compliance advice and litigation over where the new boundaries lie.
