The Department for Business, Energy and Industrial Strategy (BEIS) has published a Consultation Paper which closes on 26 February inviting comments on the possibility of legislative amendments providing for making post-termination restrictions illegal or ensuring that they are only enforceable if employers’ pay employees for the period during which employees are bound by the restrictions.
The paper builds on a call for evidence which gathered submissions in 2016.
The BEIS is concerned that in the post Covid era these non-compete provisions are stifling innovation and competition as well as unfairly restricting the job of business opportunities available to employees.
The proposed changes are intended to support an ‘economic bounce back’ and ‘unleash innovation’.
The aim is therefore to discourage the widespread use of non-competition clauses and allow departing employees with the freedom and flexibility to use their skills.
The possibilities being put forward are:
Enhancing the transparency and communication with employees where non-competition clauses are used; and
Placing statutory limits on the length of the non-completion clauses; or
Making post-termination, non-compete clauses in contracts of employment unenforceable.
Businesses at the leading edge of technology and innovation should keep a close eye on the outcome of this consultation (and seek to respond to it) because of the possible effects these provisions may have on their ability to protect their IP and confidential information.
It is said that the reason that California is the home of tech innovation is the fact that non-competition covenants are illegal. Other jurisdictions such as French Law require compensation to be paid to employees restricted by covenants for the period of the enforceability of the covenant.
It undoubtedly the case that there are a number of employers who are imposing covenants on the basis of a blanket policy which they are applying to a large number of their employees without much thought as to whether their imposition is strictly necessary. It is also the case that employees are often genuinely surprised to find that their contracts of employment contain restrictive covenants and what their effects may be.
Furthermore there is often uncertainty as to whether a covenant is reasonable and enforceable in the circumstances in which it is being sought to be imposed or not and therefore a future well drafted legislative regime is to be welcomed if it will allow employers and employees to know exactly where they stand and what rights and obligations each is bound by.
In the meantime employers would be well advised to look carefully at the measures they have in place for protecting their confidential information in order to protect themselves from the provisions which government may implement. Employers need to review the security measures they have in place protect confidential information from being copied and/or downloaded as well as reviewing the contents of their contracts of employment and the policies applied in company handbooks. It may well be the case that these are the protections which employers will in the future have to rely on as non-competition covenants are watered down or otherwise prescribed.
