Reforming non-compete clauses: What employers need to know

In November 2025 the government published a working paper on reforming non-compete clauses. This is part of their strategy to encourage start-ups by giving them access to talent, improve competition and give freedom to employees to switch jobs or start their own new business.

What are non-compete clauses and when are they enforceable?

Non-compete clauses aim to prevent employees from joining or starting up a competing business for a set period after their employment ends. The starting point is that this type of clause is unenforceable unless an employer can show that it is both reasonable and protects a legitimate interest such as customer connections or trade secrets. When looking at what is reasonable a court will consider the length of the non-compete restriction, its geographical scope, the employee’s role and the nature of the business. To be effective a clause will generally need to be well tailored your specific business needs and to the particular job role. If an employee breaches a valid non-compete clause they would be in breach of contract and could face an injunction preventing them from working in their new role, damages and legal fees that the employer has incurred in enforcing the clause.

Why the government is consulting on reform

Even where non-compete clauses are unenforceable, they can deter workers from switching jobs as employees may not realise they are not bound by them or may not have enough resources to get advice. Views are sought in the consultation as to whether concerns about costs stop employees from challenging non-compete clauses, and if so, what changes would help to reduce this concern.

The government’s proposed reforms

The government wants to balance an employer protecting their business with the potential negative effects of these non-compete clauses such as restricting job mobility and blocking new companies from forming and growing.

With that aim four proposals for reform have been suggested in this consultation:

1. Introducing statutory limits on the length of non-compete clauses

Views are sought on a cap, including a cap that varies by size of employer. To make it easier for employees of large companies to move role it is suggested that non-compete clauses in companies with 250 or more employees are capped at 3 months duration and those with fewer employees at 6 months.

2. Banning the use of non-compete clauses in employment contracts entirely

This mirrors the situation in California and some other US jurisdictions. Views are sought on whether there might be unintended consequences of doing this such as employers tightening other restrictive covenants or removing deferred compensation and benefits from employees who join a competitor.

3. Banning non-compete clauses below a salary threshold

This limit would protect lower paid employees who may not be in a position financially to challenge a non-compete clause or to negotiate employment terms with their employers. Businesses would then still be free to add appropriate protections for more senior employees.

4. Combining a ban on non-compete clauses below a salary threshold with a statutory time limit

Any non-compete clauses permitted by these new rules would still need to meet the test above, demonstrating reasonableness of the restriction alongside a legitimate business interest to be protected.

When could changes take effect?

This is not the first time a government has sought to make changes to non-compete restrictions, the previous Conservative government had indicated that it would regulate their use, so it was not unexpected that the Labour government would pick this up at some stage. To make these type changes, primary legislation would be needed. As we have seen with the progress of the Employment Rights Act 2025, this is not a quick process, so changes are unlikely to happen soon. 

Your to do list:

• Review your non-compete clauses to ensure they are not wider than is necessary 
• Review your other post-termination restrictions to ensure these are effective such as your non-dealing and non-solicitation clauses along with your confidentiality and IP obligations
• Consider other methods of protection by including garden leave and increased notice periods in your employment contracts

If you have any questions about non-compete restrictions or would like to review whether your clauses are drafted effectively, please get in touch. You can provide feedback on the consultation before 18 February 2026 here.