The Government has published a Call for Evidence seeking views on whether non-compete clauses stifle innovation and unfairly hinder workers from moving freely between employers.

If the evidence suggests that such clauses are acting as a barrier to flexibility, the Government may introduce legislation to limit the use of such restrictions. The Call for Evidence closes on 19 July 2016.

Background

On 25 May 2016 the Department for Business Innovation and Skills (BIS) published a Call for Evidence seeking views on how non-compete clauses are operating in practice. BIS wish to understand whether such clauses:

  • Hinder those who might be considering setting up, or have set up, an innovative enterprise; and/or
  • Unfairly limit workers from moving freely between employers.

The focus on such clauses is said to be part of the Government's drive to make the UK labour market as flexible as possible.  This follows a report by the Social Market Foundation in July 2014, which recommended that the Government ban non-compete clauses from employment contracts altogether, on the basis that they acted as a barrier to workers and frustrated innovation. There is no suggestion that the Government now plans to introduce a complete ban.  Rather, the desire is to ensure that when such clauses are used they are: "justified, well-constructed, targeted and reasonable" and fairly balance employer and worker  interests.

What types of restrictions are within the scope of the Call for Evidence?

Although the Call for Evidence refers to "non-compete clauses", its scope is not restricted to restrictions preventing workers from working for a competing business. Within the scope of the Call for Evidence are:

  • Restrictions which prevent an ex-worker from working for, or setting up, a competing business (including area-based restrictions);
  • Restrictions which prevent an ex-worker from dealing with the employer's customers; and
  • Restrictions which prevent an ex-worker from employing employees of the employer.

The Call for Evidence is silent on whether restrictions which prevent the ex-worker from soliciting clients or employees of the employer are covered. This is surprising as non-solicitation provisions are, perhaps, the most commonly used form of post-termination restriction. However, it should be noted that the term "non-compete clauses" is defined in the Call for Evidence as: "…any clause in an employment contract that seeks to restrict a worker's ability to compete against their former employer after they leave". Further, the Call for Evidence asks for examples of other clauses (beyond those referred to above) which restrict competition. Therefore, it is likely that non-solicitation clauses will be addressed by BIS as part of this review.

Confidentiality clauses and intellectual property provisions are not within scope on the basis that these are"separate policy areas".

What areas are addressed by the Call for Evidence?

In addition to asking for further examples of non-compete restrictions, the Call for Evidence poses a number questions on the following areas:

  • The prevalence of non-compete clauses in the UK: the questions focus on whether non-compete clauses are used generally across the labour market, or are more prevalent within certain sectors and roles.
  • Whether employer respondents have used non-compete clauses: the questions focus on whether the employer uses different types of restrictions for different roles, or whether a blanket approach is adopted. Evidence is also sought on employer experiences of taking action against an ex-worker for breaches of such clauses.
  • Whether worker respondents have been subjected to non-compete clauses: the questions focus on what restrictions have been imposed on workers, and whether the worker clearly understood the implications of such restrictions. Evidence is also sought of situations where a worker has disregarded or challenged a non-compete clause.
  • Experiences of where non-compete clauses have affected, or prevented, workers from moving to new employment, or starting up their own competing business: here, evidence is sought from both workers and prospective employers.
  • Whether there would be any repercussions or unintended consequences of restricting some forms of non-compete clauses: views are sought on the consequences of legislating to limit the use of such clauses, and whether the use of non-legislative measures would work. Employers are also asked to submit views on whether intellectual property and confidentiality clauses alone would be sufficient to protect their business interests (and, if not, why not).
  • Whether non-compete clauses are transparent: views are sought from employers, workers and advisers on whether the purpose, and implications, of non-compete clauses are fully understood. Related to that, views are sought on whether new guidance would be helpful and improve confidence around the use of such clauses.

What's next?

The Call for Evidence closes on 19 July 2016. The responses will be used to build up a better understanding of how such clauses are being used, and their impact. If the evidence suggests that such clauses are acting as a barrier to flexibility, the Government will consider how best to act. This could mean new legislation will be introduced to limit the use of such restrictions.

Call for evidence: non-compete clauses