Many employment contracts contain specific post termination restrictions on where and for whom employees can work after their employment terminates.
Most commonly the employment contract seeks to prevent employees working for an existing competing business, or setting up a new competing business for a certain time limit after termination, and / or in certain geographical areas (e.g. within 25 miles of the employer).
Employers argue that such contract terms are necessary to protect legitimate business interests by preventing employees from taking valuable knowledge of processes or customer details and either passing the information on to a rival business, or using it to gain an unfair advantage when setting up their own business.
However, the government has announced that contract terms seeking to impose post termination restrictions on working for competitors – or setting up their own competing business are to come under scrutiny as part of a wider review of barriers to innovation.
Business Secretary Sajid Javid has announced that the Government will be looking for input from individuals and employers as to whether post termination restrictions, aimed at preventing competition, are impeding economic growth by acting as a barrier to innovation and employment and stifling new British start-ups.
Employers often attempt to impose “Non-compete clauses” for up to 12 months after an employee leaves.
They are currently only enforceable in court if the employer can show that the clauses go no further than is absolutely necessary to protect legitimate business interest and are for a reasonable time scale and geographical area.
However, there have been suggestions that even with this safeguard, non-compete clauses can hinder start-ups from hiring the best and brightest talent.
Consequently the Government is asking for views on whether they hinder business innovation.
This is part of a wider online survey seeking ideas in relation to seven key areas where the government has identified that changes need to be made in order to prevent barriers to growth. These are:
- Making regulation work for business
- Access to data
- Access to finance
- Using government procurement to kick start development of new tech
- Supporting new and dynamic businesses
- Maximising opportunities to deliver infrastructure that unlocks wider economic opportunities
- Intellectual property