UK Government’s Proposal to Reduce Non-Competes Not Included In King’s Speech | Seyfarth Shaw LLP
At the State Opening of Parliament last week, the UK Government outlined its legislative agenda through the King’s Speech, an annual address where the ruling monarch, wearing the Imperial State Crown, reads a speech that has been prepared by the current Government outlining the Prime Minister’s priorities for the parliamentary year.
This week, King’s Speech was notable for several reasons. It was Charles III’s first Speech from the Throne as monarch. It was the first King’s Speech since the late Queen’s father (and Charles III’s grandfather) George VI addressed Parliament in 1951. It set out a number of domestic and foreign policy priorities for the Government ranging from energy independence and the wars in Israel and Ukraine to regulating football clubs and banning cigarettes forever.
And notably by its absence, it included no reference to the UK Government’s previously-announced proposal to limit non-compete covenants to 3 months after employment.
Currently, non-compete agreements in England and Wales are governed by the common law rule of reason, under which such clauses are enforceable if they a) protect a legitimate business interest of the ex-employer; b) they are no wider than reasonably necessary to protect that legitimate business interest; and c) they are not contrary to the public interest.
Courts in Scotland and Northern Ireland take a similar approach. Although English law currently does not impose any per se limitation on the duration of non-compete covenants, courts throughout the constituent countries of the United Kingdom typically are more willing to enforce non-compete covenants of up to six months after termination of employment than restrictions for longer periods.
As we previously reported, earlier this year, the Government issued a policy paper in which it announced its proposal to limit non-competes. Unlike the approach taken by the U.S. Federal Trade Commission and increasingly taken by U.S. states, the UK Government does not propose banning non-competes outright. Rather, in its policy paper, the Government announced its intention to introduce legislation that will limit the length of non-compete clauses to 3 months. The Government’s policy paper indicates that the Government’s proposed legislation “will not interfere with the ability of employers to use (paid) notice periods or gardening leave, or to use non-solicitation clauses. These reforms will not cut across arrangements on confidentiality clauses, nor will they affect restrictions on (former) public sector employees under the business appointment rules.”
Although the Government’s policy paper last May announced the Government’s intention to “legislate when parliamentary time allows,” to date no bill has been introduced on this topic. The absence of any reference to this proposal in the King’s Speech suggests that limiting non-competes likely is not a major priority of the Government and that a bill to limit non-competes may not be introduced in the House of Commons any time soon, despite the fact that a limitation on non-competes likely would garner support from the Opposition benches.
That said, if the last decade has shown anything, it has shown that political developments on both sides of the Atlantic are often unpredictable. Given the current trend to restrict non-compete covenants on both sides of the Atlantic, companies with employees in either the United Kingdom or the United States should take a close look at their existing agreements to ensure that they are compliant with current law and that they are sufficiently flexible to address changes in the law in the months ahead.
