Employment & Pensions Blog: Rethinking Restrictive Covenants - The Government Targets Non-Compete Clauses

On 26 November 2025 the Department for Business and Trade published a white paper setting out the case for reforming non-compete clauses in employment contracts. The white paper builds on a consultation carried out under the Rishi Sunak Government in 2023, and invites people to give their views online by 26 February 2026. 

Non-Compete Clauses

Employees commonly have restrictive covenants (also known as post-termination restrictions) in their contracts of employment. They are used broadly across all sectors, but are more prevalent in financial services, legal, professional services, life sciences, technology and software. They are also used for Senior Executives across all sectors.  

There are different types of restrictive covenant, but the Government’s white paper is focussed on the most controversial: non-complete clauses. These clauses prevent an employee from joining a competing company or starting a competing business for a defined period of time.  

Non-compete clauses must be reasonable to be legally enforceable given the wider public policy principle that people have to be able to go out and earn a living, and clauses like this restrict their ability to do that. The employer must have a legitimate business interest that it is trying to protect, and the clause must go no further than is necessary, to protect that interest. 

In practice, some employers use non-compete clauses in a way that isn’t legally enforceable. Usually by using non-compete clauses to deter employees from leaving, rather than protecting business interests, which has a knock on effect for employee mobility, productivity and the labour market more generally.  

The Government’s Case for Reform 

In the white paper, the Government believes non-compete clauses prevent:

• Boosting the labour market and average wages, by making it easier for workers to move jobs or launch their own start-up.
• Making recruitment easier by removing barriers, particularly for scale-up businesses looking to grow.
• Promoting competition for innovative employees and entrepreneurs.
• Protecting workers who are financially unable to weather long periods out of work or a protracted legal challenge. 

The Government also highlights that the UK is noticeably out of step with other countries when it comes to non-compete clauses with around 26% of UK workers subject to these restrictions, compared to 18% in the US and 16% in Italy. Certain states in America outright ban non-compete clauses, most notably the start-up capital of California. Elsewhere, France, Germany and Italy require mandatory compensation for the duration of any restricted non-working, with Luxembourg and Austria banning clauses below a particular threshold which they find increased worker mobility towards higher paying and better-quality companies. 

The Government's Proposals 

The Government has outlined 5 options for reforming non-compete clauses:

1. A statutory 3-month cap on their duration.
2. A statutory cap depending on the size of the company.
3. An absolute ban.
4. An absolute ban under a certain salary threshold.
5. A combination of the above.

The Government has given little away on which option it’s leaning to, but it is noticeably critical on the lack of protection offered to lower-income employees, which might suggest a preference for the salary threshold approach recently adopted by Australia; or the absolute ban adopted by some American states.

Comment

In a world where employees move jobs more frequently than they historically used to, there is a strong case for at least some reform to non-compete clauses. 

An outright ban on all non-compete clauses has both upsides and down. It could make employers less likely to invest in training and upskilling if there is a risk the employee could take that straight to a competitor. On the other hand, an outright ban could be financially beneficial to employees if businesses turn to retention bonuses as a mechanism to retain talent. 

A statutory cap on the length of the restrictive period based on the size of the company seems problematic. Surely a smaller start-up company has more to lose than a large multinational, and presumably the thinking would be that the bigger the company is the smaller the restrictive period can be – but are you then just punishing companies for their success?    

To my mind, the solution is to require businesses to pay former employees a fee during the non-compete period. This makes it much more likely that the clause will be enforceable because businesses will only be willing to pay the fee if there is a legitimate business interest they are trying to protect, and the employee retains at least, to some degree, an ongoing financial benefit during the period they can’t join a competitor. As much as that makes the most sense to me, it isn’t one of the options the Government is considering in its white paper. 

If you require further guidance on restrictive covenants, please contact a member of our Employment Team.