In May 2023 the then UK government announced its intention to introduce a statutory limit of three months on non-compete clauses in employment and worker contracts.
This followed a consultation exercise carried out by the government between December 2020 and February 2021 on possible measures to limit the use of non-compete restrictions.
While the government’s announcement might have been welcome news for anyone working in business sectors where restrictive covenants are common, the proposal is a lot narrower than the headline suggests, and it might even result in greater restrictions for some workers.
Non-compete clauses preclude a worker from joining a competing business for a limited period after their employment has ended.
The clauses cannot be used solely to prevent competition, which would be contrary to public policy, but if they are needed to protect the employer’s legitimate business interests (such as its trade secrets and confidential information, or its customer connections) and go no further than is reasonably necessary between the parties, the courts may uphold them.
There is currently no fixed limit on the duration of a non-compete restriction, and it is up to the courts to decide what is reasonable on a case-by-case basis.
There is no reason why a court cannot uphold a clause that prevents an employee from joining a competitor for 12 months (or even longer) if that is justified in the particular case – and their old employer has no obligation to pay them for the duration of the restriction unless their contract requires it, which would be highly unusual.
Non-compete clauses can therefore deter employees from moving between jobs, which the government is keen to change.
Traditional partnerships
Partners in traditional partnerships (under the Partnership Act 1890) often find themselves subject to longer restricted periods than would be allowed for employees, as the law will treat them like the owner of a business, just as a shareholder or business sale agreement might reasonably contain restrictions that last for several years after the relevant shares or the business have been sold.
The leading case in this area, Bridge v Deacons [1984] AC 705, shows how far the restrictions in a traditional partnership agreement can go, with an equity partner in a Hong Kong law firm being prevented from acting as a solicitor for five years for anyone who had been a client of the firm during the three years before he left, regardless of whether he had had any personal dealings with them during that time.
Traditional partnerships are much less common nowadays, and senior individuals in financial or professional services firms are more likely to be a member of a limited liability partnership.
While the non-compete restrictions in most modern LLP agreements might not be as draconian as those found in traditional partnership agreements, they still tend to be at or above the high end of the range that might normally be seen in employment contracts, and the courts have not readily rejected them merely because of their duration.
