For example, in Pricewaterhousecoopers LLP v Carmichael [2019] EWHC 824 (Comm) the High Court applied Bridge v Deacons in granting a temporary injunction to uphold a six-month non-compete restriction (which followed a garden leave period of more than nine months), pending an arbitration hearing.
This is where the limits to the government’s proposal become apparent, because the three-month cap will only apply to non-compete clauses in employment and worker contracts, and not those in partnership, LLP or shareholder agreements.
It is unclear whether non-competes in settlement agreements will be covered – if not there will be scope for employers to introduce longer restrictions as part of any severance arrangements (for example, in return for enhanced redundancy payments), although that will not assist where an employee resigns to join a competitor and the employer has nothing to bargain with.
It is also worth noting that there is no intention to limit the duration of other types of restrictive covenant, such as those that preclude the solicitation of clients or customers, or prevent business dealings with them, for fixed periods of time after the employment has ended.
Although such provisions do not generally have as great an impact on individuals as non-compete clauses, they are usually imposed for longer periods and can still deter some employees from moving, or make them less attractive to potential employers.
It is not clear how the limit would affect existing non-compete restrictions that last for longer than three months.
Currently, if a court decides, for example, that a 12-month non-compete restriction is too long in a particular case and that a six-month restriction would have been sufficient, the non-compete will be void and the court will not rewrite it so that it lasts only for six months.
Although it would make sense for a statutory cap to work differently (at least for non-competes entered into before any legislation comes into force, so that an otherwise enforceable restriction would just have its duration cut down to three months), we will have to wait and see what the legislation says on this point.
Tightening up
It is possible that employers will look to introduce alternative measures to protect their business interests if the proposed three-month limit on non-competes in employment and worker contracts takes effect.
One advisable step would be to tighten up where necessary the restrictions on the use of their trade secrets and other confidential information – something all businesses should consider, regardless of whether or not they use non-competes.
Other measures are likely to include longer notice periods and greater use of garden leave restrictions, which could apply regardless of whether the employee is leaving to join a competitor, and therefore be more restrictive for the employee than having a longer non-compete clause, as well as tougher non-solicitation and non-dealing restrictions.
