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‘Unfair’ non-compete and exclusivity clauses to be curtailed

Business secretary Alok Sharma announced the government’s plans today. Photo: Leon Neal/PA Wire/PA Images

The government has confirmed it intends to crack down on and potentially ban the use of non-compete clauses in employment contracts – as reported by Personnel Today on Tuesday – and announced its intention to prohibit exclusivity clauses for low-paid workers.

Business secretary Alok Sharma today proposed new measures, part of the government’s plans to “build back better”, designed to allow workers greater freedom to find new or additional work by curbing “unfair” employment clauses.

The Department for Business, Energy and Industrial Strategy has launched a consultation to reform the use of non-compete clauses, which can prevent individuals from starting up or joining competing businesses after they leave a position.

The move is designed ensure individuals have the freedom to apply their skills in another role if they wish while unleashing a “wave of new start-ups” across the country.

Plans involve requiring mandatory compensation for any employer that wishes to use non-compete clauses, ensuring that workers receive a fair settlement if they are restricted from joining or starting a business within their field of expertise. This aims to discourage the “unnecessary” and widespread use of non-compete clauses by employers.

In France, a “non-derisory” amount of compensation must be paid to an employee for the duration of any non-compete restrictions. Failure to do so may lead to a legal claim and the release of the employee from the restrictions in the clause.

The government is also seeking views on whether it is necessary to go further and ban non-compete clauses all together.

As reported earlier this week, legal experts have questioned whether removing non-compete clauses might deter investment in the UK. Stefan Martin, partner at Hogan Lovells, told Personnel Today: “Non-competes are a key weapon in a company’s business protection armoury. Rather than encouraging entrepreneurs, taking them away might actually make entrepreneurs or investors think twice about basing start-ups in the UK. Abolishing non-competes would make it more difficult to stop key employees walking out and setting up a rival business, making establishing or funding start-ups much more risky.”

Under David Cameron’s government in 2016, BEIS published the outcome of a similar consultation into non-compete clauses. The majority of responses fed back that restrictive covenants were a valuable and necessary way for employers to protect their business interests and do not unfairly impact on individuals’ ability to find other work.

BEIS is also now consulting on banning the use of exclusivity clauses in contracts, which prevent people on low-incomes working for other employers. This would apply to workers whose guaranteed weekly income falls below the Lower Earnings Limit, currently £120 a week. It said the change would empower around 1.8 million low paid workers across the UK to top-up their income with additional work.

While the government will spin it as a ‘win’ for the low paid, it’s unlikely to make much of a difference without proper enforcement.” – Stephen Simpson, XpertHR

The move will also expand the talent pool for businesses who rely on part-time and flexible workers, as those already in low-paid part-time employment will no longer be bound by restrictive covenants.

Sharma said: “We want to ensure every worker has the freedom and flexibility to work in the way they want, where they want – whether that’s topping up their pay packet by taking on additional work, or being able to start their own business with the skills they’ve gained throughout their career.

“Today’s reforms are another step on our path to making sure the UK is the best place in the world to work, start and grow a business as we build back better from the pandemic.”

Andy Chamberlain, director of policy at the Association of Independent Professionals and the Self-Employed (IPSE) said: “It is a welcome step in the right direction that the government is consulting on ways to crack down on restrictive contracts. Paring back restrictive contract features such as exclusivity and non-compete clauses should, we hope, help open up opportunities for the self-employed and support them in adapting to these challenging times.”

Ben Willmott, CIPD head of public policy: “This proposal should benefit low-paid workers wanting to work for more than one employer and make it easier for employers to fill part-time vacancies in some cases. However, it is important government brings forward quickly its plans to improve labour market enforcement through the creation of a single enforcement body to ensure that people’s employment rights are protected, particularly the low paid, who can be at most risk of unfair treatment.”

Exclusivity clauses were banned for workers on zero hours contracts in 2015. Stephen Simpson, principal employment law editor at XpertHR, said that extending the ban to other low-paid workers’ contracts does “superficially sound attractive”.

However, he added: “A law like this is simply not going to change poor employment practices. The first big problem is that very few low-paid workers, who are unlikely to have easy access to legal advice, are going to be in a position to be able to challenge employers that have an exclusivity rule in place. That is if they will even be aware that their employer is not allowed to do this.

“The second big problem is one of enforcement – even if workers are protected against detriment and dismissal over exclusivity clauses, very few are going to be able to afford the cost and time it takes to take the employer to a tribunal. While the government will spin it as a ‘win’ for the low paid, it’s unlikely to make much of a difference without proper enforcement.”

In Germany, exclusivity clauses are not used in employment contracts, and taking on an additional job, as long as it is not in competition with your first employer, is allowed. It also allows “mini-jobs”, common in catering, retail, and domestic work, to promote higher employment rates through income tax-free marginal employment, with workers making no more than €450 a month.

The consultations, on non-compete clauses and, separately, exclusivity clauses, both close on 26 February 2021.

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