Lawyers raise red flags over Labour’s non-compete shake-up
The future of non-compete clauses in the UK is at a crossroads, with the government considering major reforms, but lawyers warn that this could lead to unintended consequences for both businesses and workers.
Non-compete clauses in the UK restrict employees from joining competitors post-employment, but are enforceable only if reasonable in scope, duration, and geography to protect legitimate business interests.
However, whilst this is a longstanding employment practice, the Labour government is actively consulting on a proposed three-month cap, as part of its overhaul of workers’ rights.
Other options on the table include making non-competes illegal in employment contracts entirely, following the lead of places like California.
The government revealed its ‘working paper’ in February, and it is now reviewing the evidence to decide which path to take.
However, the Employment Lawyers Association (ELA) hit back, arguing that the current common law system, which has developed over centuries, effectively balances the interests of employers and employees.
The ELA describes the government’s plan for a three-month cap as a “blunt instrument” that fails to account for the specific needs of different business sectors and roles.
More time in the garden?
The group of specialised lawyers also warned that if non-competes are banned or severely limited, employers will simply find other ‘workarounds’ that could be even more restrictive for workers, including increased use of ‘gardening leave’.
Andrew Czechowski, associate at law firm Simkins, warned that this move by Labour will “restrict employees from joining competitors” as “longer notice periods and garden leave will be used by employers to keep key talent out of the market”.
“This will, however, have cost implications. If a company may need to fund six or 12 months of paid garden leave to prevent a departing executive from joining a rival, the true price of hiring rises,” he explained, adding, “Faced with that exposure, some employers will think twice before recruiting.”
Czechowski added that “in reality, employers will be reluctant to share confidential information with all employees, especially those they deem to be a flight risk… [which] could impact the performance of a company.”
The ‘punitive’ Employment Act
This comes as the government’s new package of employment rights under the Employment Rights Act came into effect last week, granting employees and unions more rights and freedom, which many fear will come at the expense of employers.
In January 2027, the reduction of the unfair dismissal qualifying period to 6 months, the uncapping of compensatory awards, and the introduction of fire-and-rehire protections came into effect.
Lawyers warned City PM that, as a result of the upcoming Act, businesses will rush through redundancies towards the end of this year to avoid the increased costs of letting staff go in 2027.
While the London Chamber of Commerce and Industry blamed the ‘punitive’ Act for London’s record-low business confidence.