Non-compete clauses in employment contracts under review
The UK Department for Business and Trade (“DBT”) has published a working paper setting out potential reforms to the use of non-compete clauses in employment contracts. We look at what employers need to know.
Published on 26 November 2025, the paper marks a renewed push by the Government to address concerns that non-compete clauses may be restricting labour market mobility and competition.
Following a decade of intermittent consultation, the Government is surpassing the previously planned statutory cap of three-months on non-compete clauses. Instead, it is widening the scope and consulting on more wide-ranging comprehensive options, which are explored in more detail below.
The DBT is also seeking feedback on whether reforms should extend to other forms of restrictive covenants and wider workplace contractual arrangements. Responses to the consultation are required by 18 February 2026.
What are non-compete clauses in employment contracts?
Non-compete clauses are inserted into employment contracts to restrict an employee’s ability to work for, or establish, a competing business after they have left their employment. The current starting point under the law of England and Wales is that a non-compete clause, as with any clause in restraint of trade, is unenforceable, unless the employer can demonstrate:
- (a) it is reasonable in scope, duration and geographical area; and
- (b) it is protecting a legitimate business interest.
Some examples of legitimate business interests commonly recognised by the courts include:
- protection of confidential information and trade secrets;
- preservation of trade connections and customer relationships; and
- maintaining the stability of the workforce.
Despite these limitations, it is estimated that around five million employees in the UK are working under a contract that contains a non-compete clause, with a typical duration of six months. Whilst it is often assumed that non-compete clauses are only found in contracts of high earners, research by the Competition and Markets Authority shows that non-compete clauses are also common among lower-paid earners.
Even if non-compete clauses are unlikely to be enforceable and/or challenged in the courts, their presence alone can deter employees from changing roles or negotiating better pay and working conditions. This is a key driver behind the Government’s current consultation.
Background
In 2016, the Conservative Government launched a “call for evidence” on the use and impact of non-compete clauses. At that time, it concluded that restrictive covenants were “a valuable and necessary tool for employers in protecting their business interests”, so no reform was pursued.
Further consultation followed in December 2020, focusing on proposals to make non-compete clauses enforceable only where employers provided financial compensation for the duration of the restriction. The previous Government’s response to this consultation was published in May 2023 and instead it proposed a statutory cap of three months on non-compete clauses. However, no legislative action was taken to implement the cap before the general election in July 2024.
In November 2025, the current consultation revisits these issues and explores a broader range of reform options.
Options for reform
The working paper identifies several possible approaches, each of which would have different implications for employers and employees.
- A statutory limit on the length of non-compete clauses according to employer size
One proposal is to introduce statutory limits on the maximum length of non-compete clauses based on the size of the employer. An example given in the paper is that an employer with more than 250 employees might be limited to non-compete clauses of up to three months, whereas an employer with fewer than 250 employees could be permitted to impose non-compete clauses for up to six months.
The Government notes that according to a YouGov poll, 71% of non-compete clauses currently exceed three months. Reducing their duration could enhance competition by allowing employees to return more quickly to work in their area of expertise. However, the paper also highlights potential drawbacks, including the risk that lower paid workers could face longer restrictions and that smaller employers may gain a relative advantage over larger employers in using non-compete clauses to retain key talent.
- A ban on non-compete clauses in employment contracts
Another option under consideration is an outright ban on non-compete clauses in employment contracts, making them unenforceable irrespective of length. This would mirror the approach taken in California and some other US jurisdictions. Although the Government acknowledges that such a ban would make it easier for individuals to change jobs or start new businesses, it also recognises that employers may respond by strengthening other forms of protection, such as other restrictive covenants, confidentiality provisions and intellectual property protections.
- A ban on non-compete clauses below a salary threshold
The consultation also considers the approach of prohibiting the use of non-compete clauses for employees earning below a specified salary threshold. This approach reflects the existing regimes in countries such as Austria and proposed reforms in Australia. The rationale behind this approach is that higher earners are more likely to have access to legal advice and financial buffers, whereas lower paid workers may be disproportionately affected by periods out of work. A salary threshold could therefore offer a targeted protection while preserving flexibility for employers in respect of senior roles.
- Combining a ban below a salary threshold with a statutory limit of three months
Finally, the Government is considering a hybrid model that would combine a ban on non-compete clauses below a salary threshold with a statutory maximum duration for those above the threshold. This could eliminate non-compete clauses for lower paid workers while softening the “cliff edge” effects of a salary-based ban alone.
What should employers consider?
Consultation remains open until 18 February 2026, and there is currently no fixed timescale for the reforms. As the changes will require primary legislation, implementation is likely to take some time. However, given the renewed focus on reform, employers should consider taking a measured and proactive approach.
In particular, employers should consider:
- reviewing existing non-compete clauses, especially those exceeding six months, to ensure they are no wider than reasonably necessary;
- evaluating how the proposed reforms may impact their business and current contractual restrictions;
- assessing the robustness of other post-termination restrictions, such as non-solicitation, non-dealing and non-poaching clauses;
- considering the use of garden leave provisions, confidentiality obligations and intellectual property protections as alternative or supplementary safeguards; and
- reviewing notice periods as a potential means of protecting business interests without keeping former employees out of the market post-termination.
Employers can provide their views on the consultation before it closes on 18 February 2026. This presents an opportunity to influence the direction of reform and contribute to a framework that balances the protection of legitimate business interests with the promotion of a competitive and flexible market.
You can download the working paper here.
Share:
Seeking advice on employment law issues?
Speak to one of our employment law specialists
Arrange a callHOW CAN WE HELP?
To get in touch with one of our legal experts please fill in your details.
Enjoy That? You Might Like These:
articles
articles
articles