What now? – Government Consultation on Non-Compete Covenants

“What’s going on”? is a fair response to the Government’s latest consultation on non-competition clauses (“NCs”) It was only yesterday (February 2018 to be precise) that following a consultation commenced in 2016 the Government concluded that legislative intervention was unnecessary: “The consensus view across the majority of responses was that restrictive covenants are a valuable and necessary tool for employers to use to protect their business interests and do not unfairly impact on an individual‘s ability to find other work. Common law has developed in this area for over a century and is generally acknowledged to work well. Having built up a picture of the UK experience via this call for evidence, we have decided it is not necessary to take any further action in this area at this stage.”

The change from that ringing endorsement of the status quo, looks like yet another by-product of the Covid-19 pandemic (and in particular its effect on the economy). Once again the Government longingly turns its eye towards the “black rifle” jurisdiction of California in which NCs are not merely “blue-penciled” but shot down. Critics will counter that there is no proven connection between the innovative success of Silicon Valley and the California ban on NCs. Others will bolster references to the Californian example with tales of cases where they allege innovation has been hampered by covenants.

The current consultation offers a further opportunity for these arguments to play out. While the consultation questions range far and wide – and include the possibility of banning NCs altogether, the impression is created that the main purpose of this consultation is to consider whether mandatory compensation should be paid for NCs.

That said, the questions range widely, covering (a) other lesser forms of restrictive covenant and (b) other kinds of contracts which have a bearing on the workplace (such as contracts for services, consultancy agreements, partnership agreements, LLP agreements, employee share options and franchise agreements). 

Other interesting questions relate to whether NC periods should be “capped” (on pain of being struck down) and whether and under what circumstances NCs can  be waived, as well as a possible requirement of pre-contractual notification of NCs.

A group from Littleton Chambers (Selwyn Bloch QC, Anthony Sendall, Lucy Bone, Charlotte Davies, James Bickford Smith and Sophia Berry) will be producing a response to the consultation paper.

If any of our professional clients wish to contribute any thoughts on this subject, please email Selwyn Bloch QC at sb@littletonchambers.co.uk and James Bickford Smith at jbs@littletonchambers.co.uk.

Commentary by Selwyn Bloch QC