Restrictive covenants and reform: Government consultation on non-compete clauses
21st May, 2026
On 26 November 2025, the Government published a working paper setting out potential reforms to the use of non-compete clauses in employment contracts.
Currently, the law is that non-compete clauses are generally unenforceable as restraint of trade unless it can be demonstrated that they are (a) reasonable in scope, duration and geographical area and (b) protecting a legitimate business interest.
Their inclusion in employment contracts is not regulated by statute, only by the Courts, and the Government is concerned that their use may have a behavioural effect on employees resulting in compliance even where the clauses would not be considered by the Courts to be enforceable. In effect, the Government is worried that employers may be using them unfairly – not dissimilar to the concern about “gagging clauses” in Non-Disclosure Agreements (NDAs).
The Government has introduced a measure through the Employment Rights Act 2025 which voids any provision in an agreement between a worker and their employer that prevents the worker from speaking out about relevant harassment or discrimination. A consultation regarding the misuse of NDAs is ongoing.
The Government has stated its commitment to:
- A dynamic labour market and economic growth
- Boosting dynamism to increase the potential for pay increases
- Reducing barriers to recruitment
- Promoting competition
- Protecting workers unable to bear the financial burden of non-compete clauses.
The Policy Paper states:
“Despite the UK having one of the most flexible labour markets among advanced economies, persistent low job mobility, weak competition in certain sectors, and low innovation are constraining productivity and economic growth. Non-compete clauses play a part in restricting employee movement, limiting knowledge spillovers, and can undermine incentives for innovation. …
Around 60% of the fall in trend productivity growth since 2008 is attributable to reduced movement of capital and labour between firms and sectors, and non-compete clauses are known to limit worker mobility…”.
The Government has, however, also expressed concerns that a reduction in non-compete clauses may reduce employers’ confidence in investing in training, and has also been consulting on the impact of non-compete clauses on training and upskilling.
The Government undertook a consultation on a range of options and has been considering if the reforms should extend to other restrictive covenants and wider workplace contractual arrangements.
The working paper explores several possible approaches to non-compete clauses, namely:
- Introducing a statutory limit on the length of non-compete clauses
The Government has considered imposing a statutory limit of 3 months on non-compete clauses but is cognisant that this would likely fail to protect lower income workers. There is also a risk that this could lead to an assumption that the statutory limit is reasonable and enforceable in all cases.
In our experience, many employers would consider 3 months far too short a period to protect its business in cases of key and/or senior staff.
- Introducing a statutory limit on the length of non-compete clauses according to company size
The paper gives the example that an employer with more than 250 employees might be limited to restrictions of up to three months, whereas an employer with fewer than 250 employees may be allowed to impose six month restrictions; the limitation being that those working for smaller companies would still be subject to long non-competes and companies with fewer than 250 employees account for 60% of UK employment.
Our view is that this makes more sense than a blanket 3 months, but may still be limiting for businesses where there are good reasons for reasonable measures to be in place to protect the legitimate interests of the business. It is always a balance between allowing the employee to earn a living in the sector they have been used to working in, and protecting the business from being eroded every time a key employee leaves. There needs to be a fair balance.
- Banning non-compete clauses in employment contracts
There is a risk that this undermines the value of businesses and creates an environment of much more frequent departures therefore destabilising business.
- Banning non-compete clauses below a certain salary threshold
The rationale being that lower paid workers may be disproportionately affected by periods out of work. This is likely true, and contracts for lower paid workers do not often have non-compete terms, but the importance of the employee is usually more critical than their salary level.
- Combining a salary threshold ban with a statutory limit of three months
Would this blended solution resolve the above concerns? Is it a good compromise? It would make matters simple, for sure. We certainly agree that a more sophisticated formula should apply, but this may be too simple for many businesses in practice.
We would expect alternative solutions to be sought by businesses to protect themselves: their answer is likely to lie in more detailed but still reasonable restrictions as to dealings with customers and suppliers, in preventing the employee tempting others to leave, and being very careful about how these are agreed with the employee at the start of their employment, and/or on being promoted.
Next steps for employers
The consultation closed on 18 February 2026 and is now under consideration; any legislative change in any event would likely take some time. However it is always a good time for employers to be reviewing their non-compete clauses to consider:
- If they are reasonable in scope, duration and geographical area
- If they protect a legitimate business interest
- That they are no wider/longer than reasonably necessary (we recommend generally limiting to 6 months save where there are exceptional justifications)
We also recommend:
- Reviewing notice periods (generally the more senior and important the employee, the longer the period).
- Considering how to strengthen your position through other restrictive covenants, such as non-solicitation, non-dealing, non-poaching and confidentiality clauses.
- Identifying key customers as ones which in any event cannot be worked with by the departed employee.
- Considering whether your contracts contain garden leave provisions (where the employee cannot work for you or anyone else in the specified period) – this counts towards the restriction period but keeps them away from customers while you can work to embed relationships.
- Reviewing whether you have a system that ensures that as far as possible, key customer relations are not dependent solely on one employee relationship.
- Reviewing if you have a system for immediately assessing the customer contacts of key employees, so if they give notice, the business can have others step into those relationships immediately, during any garden leave period and/or any restriction period.
Click here for the Government explanation.
If you have any concerns about the enforceability of your business’ non-compete clauses and how to strengthen your restrictive covenants please do get in touch.
Please note that this briefing is designed to be informative, not advisory and represents our understanding of English law and practice as at the date indicated. We would always recommend that you should seek specific guidance on any particular legal issue.
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