Change is afoot in the field of post-termination restrictions and covenants.
We recently reported on the impact of the new EU Trade Secrets Directive, which has the potential to create legal uncertainty on options for employers who wish to protect confidential information from use by ex-employees, with a knock-on effect on the enforceability of covenants which protect confidentiality.
Now the government has launched a call for evidence as to whether “clauses that prevent an individual from competing against their former employer are stifling opportunities to innovate and grow” and “whether this type of restrictive practice is acting as a barrier to innovation and employment and preventing British start-ups from prospering.” This is part of the government’s “Innovation Plan”, which calls for ideas as to how the UK can continue to be a world leader in business innovation.
This is just a call for evidence at this stage, with no detailed proposals as yet. However, assuming this indicates the government’s direction of travel on this issue and that restrictions or a ban are to be proposed on non-compete clauses and, potentially, provisions restricting solicitation and dealing with clients, this would entail a major overhaul of a long-standing area of law and business practice. On one view it is an area in which reform would be welcome, given that post-termination covenants cause notorious difficulties in practice – with frequent uncertainty over enforceability, and high enforcement costs. To the extent reform provides business and individuals with greater certainty this is to be welcomed, but it remains to be seen precisely what is proposed, and whether that is likely to be achieved. We will keep you updated.