Reform of non-compete clauses back on the agenda

The Government has issued a policy paper seeking views on options for reforming non-compete clauses in employment contracts. Back in 2023, following an earlier consultation, the previous Government indicated that it would cap the duration of non-compete clauses at three months. However, these plans were never implemented. The current Government is looking at the issue again and is asking for views on the following options:

• Introducing statutory limits on the length of non-compete clauses
• Banning non-compete clauses in employment contracts altogether (the approach in some US states)
• Banning non-compete clauses for those earning below a salary threshold (the approach taken in Austria and Luxembourg)
• Combining a ban below a salary threshold with a statutory limit on duration.

The Government is not considering requiring employers to pay compensation to employees for the period of the non-compete clause. This option was considered by the previous Government, but ultimately rejected.

Statutory limit on length of non-compete clauses

The Government notes the previous Government’s intention to introduce a three month limit on the duration of non-competes, but is also prepared to consider a shorter or longer period. However, it recognises that a six month limit would have limited impact (as this is already the most common length used by businesses) and employers would be unlikely to seek to enforce a one or two month non-compete in the courts, resulting in employees having little incentive to comply. Another option would be to have different lengths for employers of different sizes, for example a three month limit where the employer employs more than 50 employees and a six month limit where the employer employs 50 or fewer employees. It also seeks views on whether employer size should be set at 250 employees.

The Government emphasises that any limit on duration should not detract from the normal principles for enforcement – a non-compete will only be enforceable if it is reasonably necessary to protect an employer’s legitimate business interests, such as trade secrets, and goes no further than reasonably necessary to protect that interest.

Outright ban

A ban on non-compete clauses would make it easier for employees to move jobs and could also lead to employers offering positive incentives, such as increased pay, bonuses and greater flexibility to retain staff. However, the Government notes that some employers might respond to a ban by strengthening their use of other restrictive covenants, such as non-dealing clauses, and it would therefore need to ensure that other restrictions are not used in a way that would have a similar effect as a non-compete.

Ban below a salary threshold

Banning non-competes for those earning below a salary threshold would protect lower paid employees who are not in a financial position to challenge their enforceability in the courts or to spend an extended period out of work. However, the Government notes drawbacks including difficulties with calculating pay, the potential for litigation over what should and should not be included in pay calculations, and problems arising from an increase to the salary threshold but no corresponding salary increase which could result in a previously enforceable clause becoming unenforceable. Employers could also choose to factor non-compete clauses into their decisions about pay, particularly where the employee’s pay is close to the threshold.

The Government does not set out its thinking on the level at which the salary threshold should be set but does mention that positioning this at the higher rate tax threshold (currently £125,140) would bring greater number of non-complete clauses within scope of the ban. It also considers that employees in pay brackets above that level are more likely to be able to afford to take legal advice on a non-complete clause or absorb the costs of having to comply.

Other restrictive covenants and other contracts?

The Government also seeks view on whether any restrictions should be limited to non-compete clauses or extend to other restrictive covenants (such as non-dealing, non-solicitation and non-poaching clauses) and whether restrictions on non-compete clauses should be limited to employment contracts or apply to wider workplace contracts.

Responses are required by 18 February 2026 and the Government’s policy paper can be accessed here.