The Government has recently announced how it plans to ‘reform’ employment law post-Brexit to limit non-compete clauses to three months, says Joanne Holborn of Baines Wilson LLP.
Comment
Non-compete clauses are one example of restrictive covenants that an employer can include in an employee’s contract of employment to protect their legitimate business interests and stop an individual working for a competitor.
As a matter of public policy, as a general rule, post termination restrictions will be void as a restraint of trade, however, there are limited exceptions to this position. The law relating to non-compete clauses and other post-termination restrictions has developed via case law and has changed over time. Non-compete clauses may be enforceable provided they are no wider than is necessary and are designed to protect an employer’s ‘legitimate business interests’, such as, customer/client connections and confidential information.
Non-compete clauses require careful drafting and must be appropriate for the individual to whom they are applicable at the time they are entered in to. As a rule of thumb, the shorter the period of restriction and the more senior the employee, the more likely such restrictions are to be enforceable.
Ultimately where there is any dispute in relation to enforceability, it is determined by the courts in what is usually very time consuming and expensive litigation.
The Government’s intention is to limit the period for non-compete clauses to 3 months provide some certainty over enforceability. This may not be popular with businesses, which often use restrictive covenants as a deterrent and the threat of litigation to discourage employees moving elsewhere.
The Department of Trade and Business has set out its proposal in its paper ‘Smarter Regulation to Grow the Economy’ and also stated that there will be no change to other post termination restrictions, notice periods, garden leave or confidentiality clauses.
The Government’s aim in restricting non-compete clauses is to stimulate the economy providing more flexibility for employees to join competitors or start their own businesses. However, questions remain in relation to enforceability and scope, and we await draft legislation.
It is unclear from the announcement if the enforceability restrictions will apply to non-competition in other types of contracts as well as employment contracts, for example, sale and purchase agreements, partnership agreements and LLP agreements. It is also unclear how any legislation will impact on any clause already in place which are for longer than three months.
Allocation of Tips
The Employment (Allocation of Tips) Act 2023 has recently received Royal Assent. The Act requires employers to ensure all tips and service charges are allocated fairly between its workers (not just employees). What will be considered as ‘fair’ allocation is not defined in the Act, however, employers are required to have regard to a Code of Practice which will be issued for consultation in due course. Employers will also have to keep records of all tips and service charges received for three years.
The Act also compels employers to have a written policy on how they deal with tips.
If you have any queries relating to restrictive covenants, allocation of tips or any other HR/employment related issues please contact our employment team on 01228 552600 or 01524 548494.
