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Non-Complete agreement being torn in half

NON-COMPLETE CLAUSES UNDER THE SPOTLIGHT: UK AND US APPROACHES ON RESTRICTING EMPLOYEES

In 2023, non-compete agreements were put under the spotlight in the UK and the US, with governments questioning how much businesses can prevent former employees from joining competitors.

There is a Conservative proposal to cap non-compete clauses at three months. With the election this year, the prospects for change are unclear, but the signs are that restrictive covenants could soon face government regulation. So, employers should consider strengthening their safeguards to ensure robust business protection, regardless of potential legislative changes.

Non-competes in the UK

A non-compete clause is designed to prevent an employee from working with a competitor for a specified period after leaving their job. In the UK, the length of non-compete clauses varies.

A Competition and Markets Authority published earlier this year revealed that about a quarter of surveyed employees had a non-compete clause. A typical UK non-compete clause is between 3 and 6 months but can run longer. However, the longer the non-compete the harder it can be to enforce and is guided by principles of reasonableness set by case law.

In May 2023, the Government declared its plan to restrict the duration of non-compete clauses down to three months. This unexpected initiative was described as a “bold” move intended to increase labour market flexibility, lower recruitment barriers, and enhance productivity

The proposal to limit UK non-compete clauses will not extend to non-solicitation clauses or non-dealing covenants. These clauses will remain unaffected by the new regulation. Furthermore, the three-month limit will only apply to employment contracts and limb (b) worker contracts.

Strategic Implications for Employers

Employers should reassess their business protection strategies, potentially revising contract templates and considering alternative restrictive measures such as longer garden leaves or enhanced non-solicitation clauses. The evolving landscape requires agility and foresight, particularly as legislative changes unfold on both sides of the Atlantic.

This may well become an issue for the wider employment market, but for the PR, Marketing, and comms industries, it tends to be mainly senior staff or C-suite who have non-compete clauses. This is something we at BoldMove, as a PR recruitment agency, can help & advise clients, particularly when they are recruiting new staff.

Looking Forward

The legal framework for non-competes, deeply rooted in centuries of history, is experiencing rapid evolution. The ongoing reforms in the UK and the drastic changes in the US signify a shift towards greater labour mobility and could herald further international developments in employment law.

For more detailed insights and guidance, the recording of the Lexology Masterclass offers valuable perspectives on these transatlantic developments.

Where the US leads the UK often follows

On 23rd April 2024, the U.S. Federal Trade Commission (FTC) voted to implement a nationwide ban on all post-employment non-compete agreements.

FTC Chair Lina M. Khan in a statement said:

“Non-compete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism, including from the more than 8,500 new start-ups that would be created a year once noncompete are banned, The FTC’s final rule to ban noncompete will ensure Americans have the freedom to pursue a new job, start a new business, or bring a new idea to market.”

This prohibition extends to any contractual clauses that effectively prevent competition, suggesting that other similar restrictions could be affected. This move marks a significant shift from the previous state-level actions regarding non-competes to a uniform federal mandate, ensuring its application across the entire United States.

The ban is scheduled to come into effect 120 days after it is published in the Federal Register.

It is widely believed that if the next President is Biden, efforts to restrict non-competes will accelerate. The opposite is likely to be the case if the Trump wins.


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