With all eyes on the Budget, many have missed that on 26 November, the UK Government published a consultation working paper on potential reform to non-compete clauses in employment contracts. This is the latest in a long line of potential reforms, containing new proposals – framed to boost labour market dynamism – which, if adopted, could materially reshape the line between fair competition and fair protection.

Background

Non‑compete clauses are the most stringent form of restrictive covenant, limiting an individual’s ability to join or start a rival enterprise after leaving a role. Under English law, all restrictive covenants are unenforceable unless they protect a legitimate business interest and go no further than reasonably necessary in doing so. The legitimate business interests most commonly relied on by employers are: 

i. protection of confidential information and trade secrets; 

ii. protecting the stability of the workforce; and 

iii. protecting client relationships and goodwill. Whether a particular covenant survives this test always depends on the specific facts of each case. 

Despite that high bar for enforceability, non-competes are widely used, with estimates that around five million employees in Great Britain are subject to one, with a typical duration of around six months. 

What are the proposals?

The consultation paper focuses on the potential for non-competes to limit employee mobility and thus negatively impact growth and entrepreneurship. Through potential reform, the Government aims to boost labour market dynamism, promote competition and innovation and reduce time out of the labour market for workers. In that context, the paper explores five models for reform. Each would meaningfully alter the balance between fair competition and fair protection.

1. Statutory limit on the length of non-compete clauses. This would introduce a maximum limit on the duration of non‑competes. The Government is seeking views on an appropriate statutory cap - which could be shorter or longer than three months. 

2. Statutory limit on the length of non-compete clauses according to company size. This would introduce different statutory limits according to company size. For example, non-competes with a duration of up to six months would be enforceable for companies with fewer than 250 employees, but for larger companies anything in excess of three months would be unenforceable.

3. Banning non-compete clauses in employment contracts. This would prohibit the use of non-competes in employment contracts entirely. 

4. Banning non-compete clauses below a salary threshold. This would mean that non-competes would only be enforceable if the worker earns over a specific salary threshold and non-compete clauses for those earning below that threshold would be automatically unenforceable. The Government does not suggest any salary thresholds, but does reference the additional rate tax threshold (currently £125,140) as an example.

5. Combining a ban below a salary threshold with a statutory limit. This hybrid model would be a combination of a ban below a specific salary threshold and a statutory limit of three months for those who earn above that threshold.

Comment 

If introduced, any of these reforms could have multiple far-reaching impacts. In particular, the following.

1. Salary thresholds, for example, are conceptually tidy but operationally messy. The definition of “pay” is not straightforward. The proposal does not clarify whether thresholds would consider base salary alone or include allowances, commission, bonus, equity, and deferred compensation, or how part‑time or variable pay would be treated, and at what measurement point. There is also a deeper mismatch between earnings and exposure. For example, a junior engineer or tech developer on £50,000 with unfettered access to a company’s core algorithms or formulae may pose a far greater risk than a highly paid senior with limited access to such secrets. In practice, earnings are a poor proxy for legitimate interest.

2. If non‑competes are limited, we can expect employers to lean harder on other available mechanisms to protect their interests: in this respect the consultation notes the prospect of firms looking to other post-termination restrictions (such as non‑dealing and non‑solicitation covenants), robust confidentiality provisions and the inclusion of protections in remuneration structures. Limiting the effectiveness of one lever may simply shift pressure to others, diluting the intended effect.

3. Perhaps the most readily available alternative is garden leave, which keeps the employee out of the market during their notice period and so operates in effect as a paid non-compete. The paper does not consider this in detail, nor include among its proposed models the imposition of a requirement to remunerate employees during the period of any non-compete. 

4. The utility of covenants also varies by sector. In relationship‑driven sectors such as professional services, non‑dealing restrictions can bite as hard as non‑competes. Salary thresholds do not capture this nuance, and the implementation of these reforms could have uneven effects across technology, life sciences, consulting, and other knowledge‑intensive fields. 

5. The paper floats the question of whether reforms should apply beyond standard employment contracts – such as to LLP members, consultants and contractors – but offers limited analysis. Excluding them would certainly cater to smaller businesses, for example, where senior executives or owner‑operators often sit outside traditional employment structures and play critical roles in safeguarding know‑how and client relationships. That said, there is a risk of complexity where non-competes overlap – for instance, where an individual enters into non‑competes in both an employment contract and a shareholders’ agreement – if different regimes apply.

6. It is not clear from the paper’s focus on the potential negative consequences of non-competes that the Government has adequately weighed up the impact of reform. Firms rely on these restrictions when developing highly confidential and innovative strategies and making advances in competitive areas. If non‑competes are restricted without workable substitutes, the net effect could paradoxically be slower innovation, reduced competition, and dampened growth. 

7. The paper also touches on enforcement, suggesting that employees may comply with unenforceable non‑competes due to the cost of challenging them. That may be true in some cases, particularly for junior or low-income employees. However, in practice, the onus commonly falls on employers to pursue injunctive relief to hold former employees to covenants. Such proceedings are costly and, even where interim relief can be obtainable, delay rapidly erodes its value. 

Next steps

Successive governments have signalled interest in reforming the law on non-competes, but whether or not legislation ultimately emerges - particularly given parliamentary bandwidth and the priority of the Employment Rights Bill - remains to be seen. Responses are due by 18 February 2026. The Government will then decide whether to press ahead and, if so, on what model.