Key takeaways
Current clauses restrict mobility and pay
Government cites evidence of wage suppression and reduced job movement.
International trend favours limits or bans
UK considering statutory limits or salary-based restrictions.
Consultation open until February 2026
Employers should make their views known now.
The Department of Business and Trade recently published a working paper inviting views on options to reform non-compete clauses in employment contracts.
Non-compete clauses are commonly included in employment contracts, especially for senior employees and those employed in roles involving close contact with key customers / suppliers. A non-compete clause seeks to restrict an individual’s ability to work for, or establish, a competing business after they have left employment. They are generally unenforceable as a restraint of trade, unless the employer seeking to rely on the clause can prove that its scope is reasonable in the circumstances to protect its business interests.
The working paper notes that around 5 million employees in Great Britain work under a contract that contains a non-compete clause, with a typical post-termination duration of around 6 months. These clauses are more prevalent in the UK than in the US and Europe. Although non-compete clauses are common in the employment contracts of high earners, research shows they are also common among lower-paid jobs.
In summary, the working paper covers the following key issues concerning the possible reform of the law applying to non-compete clauses in employment contracts:
The case for reform
The government is concerned about the behavioural effect on workers of having a non-compete clause in an employment contract. Even if a non-compete clause is broadly drafted, and therefore highly unlikely to be enforceable, the worker may perceive the clause as binding and: (a) comply with it due to the risk of legal proceedings and being ordered to pay the employer’s legal costs; and (b) be deterred from moving jobs to secure better pay or working conditions.
Non-compete clauses are also known to place downwards pressure on wages, decreasing earnings by as much as 4%, with higher impacts in sectors where non-compete clauses are more common. Reduced worker movement has impacts on the wider economy, including acting as a brake on entrepreneurial activity and leading to reduced productivity growth.
The working paper also notes that many international jurisdictions have taken action to limit the impact of non-compete clauses. In the United States, several states have banned non-compete clauses altogether and other states have laws restricting their use. Across Europe, some countries require mandatory compensation is paid to workers for the period of the non-compete clause, and other countries have introduced a ban on non-compete clauses below a salary threshold. Australia also recently announced a ban on non-compete clauses for employees earning less than £85,000 a year.
Reform objectives
By reforming non-compete clauses, the government would be seeking to advance the following objectives:
boosting labour market dynamism by making it easier for workers to move jobs or build their own start-up business, with the potential to earn higher wages;
reducing barriers to recruitment so that high productivity, innovative businesses, particularly scale-ups at critical stages of growth, can access the talent they need;
promoting competition and innovation by maximising opportunities for the most talented innovators, experts and entrepreneurs in the UK; and
protecting workers so that they do not have to face extended periods of time out of the labour market in their area of expertise, often as long as 6 to 12 months, unable to afford the financial burden of challenging a non-compete clause in the courts.
Options for reform
The specific reform options about which the government is seeking input are:
A statutory limit on the length of non-compete clauses;
A statutory limit on the length of non-compete clauses according to company size;
A ban on non-compete clauses;
A ban on non-compete clauses below a salary threshold; or
Combining a ban on non-compete clauses below a salary threshold with a statutory limit of three months for non-competes over the salary threshold.
The government is also seeking views on whether the cost of litigating disputes over restrictive covenants in the High Court (including the risk of adverse costs) presents an obstacle to employees challenging unreasonable restrictive covenants. If so, suggestions are sought as to how this could be addressed.
The deadline for responding to the working paper is 18 February 2026.
