Government consults on banning non-compete and exclusivity clauses in contracts

The government recently announced a review and proposed ban on the use of non-compete and exclusivity clauses in employment contracts to give workers ‘greater freedom’ in finding new or additional work.

Non-compete clauses

Businesses can include non-compete clauses in employment contracts as a means of protecting their businesses by restricting individuals from working in competing businesses or starting their own competing business for a set period after the employment has ended.

Types of restrictive clauses

The most common types of restrictive clauses include the following:

• Non-competition clause – restricting the former employee from working with a competitor or in a similar employment
• Non-solicitation clause – preventing the poaching of clients, customers and suppliers from the previous employer
• Non-dealing clause – preventing the former employee from working with previous clients, customers or suppliers.
• Non-poaching clause – stopping a former employee from poaching their former colleagues

The new proposed measures

The new reforms are part of the government’s plans for the UK to ‘build back better’ from the Covid-19 pandemic. The ban on using non-compete and exclusivity clauses may help with economic recovery, creating new jobs and increasing competition. The new measures will also help workers particularly those with low incomes to enhance their earnings during these unprecedented times. The government will propose a ban on restrictive clauses in contracts for workers with a guaranteed weekly income lower than the Lower Earnings Limit which is currently £120 a week.  Up to 1.8 million low paid workers in the UK will have the opportunity to increase their incomes by undertaking additional work if they wish to. By eliminating unfair clauses, the government hopes to expand the pool of talent available for businesses who rely on employing part-time and flexible workers. Workers in low paid or part-time employment will have the freedom to work for these businesses alongside their current jobs. Employees working in the technology sector, legal sector and other sectors can also benefit from the new proposed measures as the ban on these exclusivity clauses means that workers in these sectors are able to join competing businesses or start up their own businesses. The government are also looking into whether it is necessary for businesses to include non-compete clauses in employment contracts and they may consider banning the use of non-compete clauses altogether. At present, exclusivity clauses are banned for workers in zero-hour contracts.