Executive Summary
Many AIMA members use non-compete agreements in the terms of their employment, to varying degrees. These agreements may subject former employees to post-employment restrictions that are intended to prevent competitor firms from benefitting from their intellectual property (“IP”), subject to reasonable terms and conditions. Absent non-compete agreements, an employer would be less likely to share their IP with a new employee, which would slow the employee’s development and stifle innovation, especially since an employee’s talent and expertise are often developed and honed by the employer and expanded upon through time and resources to teach that expertise.
Non-competes are not without controversy: Enforceability has been legally challenged by former employees who believe their careers are unduly harmed by these previously agreed contractual provisions. Where challenged, courts or arbitrators have ultimately determined enforceability of non-competes.
In the U.S., the process to address non-compete disputes has varied on a state-by-state basis, ranging from partial revision to preserve enforceable terms (referred to as “reformation”) to voiding an entire agreement if found to contain unenforceable provisions. Presently, four U.S. states have outright bans of non-compete agreements, irrespective of terms: California, Oklahoma, Minnesota, and North Dakota. In June 2023, a bill was passed in New York that, if passed later this year as written, would add New York to the list of stated that ban non-competes entirely. However, the U.S. Federal Trade Commission also has released a proposal to ban non-competes at a federal level, which would supersede state authority if passed.
In the UK, the government launched a consultation in December 2020 to consider measures to reform post-termination non-compete clauses in employment contracts. Although the consultation considered an outright ban of non-competes, it has since identified that it will introduce a statutory limit of three months on the length of non-compete clauses, applicable to employment and certain worker contracts only. The government will bring forward legislation to introduce the statutory limit when parliamentary time allows.
Globally, we see a continuing push to narrow the use of non-competes and scrutiny of restrictive covenants in general. Any employer that seeks to use non-competition and non-solicitation agreements to protect its trade secrets, confidential information, client relationships, goodwill, or workforce needs to stay informed of the varied and ever-evolving standards in all jurisdictions that may impact their businesses.
These pages will serve to apprise members of notable developments in all regions. Please check back regularly for updates.
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Daniel Austin
Head of US Markets Policy and Regulation
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Aniqah Rao
Associate Director, Markets, Governance and Innovation
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Suzan Rose
Senior Adviser, Government and Regulatory Affairs, AIMA
U.S. Federal Requirements
U.S. Federal Trade Commission (FTC)
On January 5, 2023, the U.S. Federal Trade Commission (FTC) proposed a rule that would establish a nationwide, categorical ban on non-compete agreements. This proposed rule (the Proposal) is based on the premise that non-competes constitute a method of unfair competition under Section 5 of the Federal Trade Commission Act. AIMA’s member firms utilize non-compete clauses for a variety of legitimate reasons and therefore would be materially and adversely impacted by the Proposal.
Reasonable non-compete clauses can have a legitimate role in employment contracts because, among other things, they can protect an employer’s investment in its employees whether it be through the employee’s training, paying for an employee to obtain an advanced degree or disclosure of sensitive business information or intellectual property (“IP”) to the employee. Without non-compete agreements, employers may be motivated to focus these resources on a smaller subset of trusted employees who they perceive as more committed to the enterprise, to the detriment of the firm’s broader workforce.
Non-compete agreements are an incredibly important part of the investment management industry. They play a critical part in protecting a firm’s confidential IP, which can include trading strategies and the proprietary research that underlies such strategies. It is therefore absolutely essential that this kind of IP (and, of course, other forms of IP) be kept confidential since it would have little value if it were widely known and therefore priced into the markets. Such a result would disincentivize the development of active investing and trading strategies to the detriment of the firm, its personnel and its investors, with follow-on effects of impairing liquidity, price discovery and competition in U.S. financial markets.
AIMA joined a working group led by the U.S. Chamber of Commerce to oppose the FTC Proposal. The group - which is comprised of over 200 trade associations, chambers of commerce, and other representatives of businesses throughout the country representing virtually every employment sector - has worked jointly to submit letters to Congress and the FTC, and to provide testimony in legislative hearings on this matter. AIMA shares the Chamber of Commerce’s view that the FTC lacks the statutory authority to promulgate an “unfair methods of competition” rule banning non-compete clauses. Accordingly, the Chamber of Commerce has stated that it intends challenge any final rule in court, irrespective of any potential modifications to apply qualifying conditions for a ban.
Aside from this joint industry work, AIMA submitted a response letter to the FTC Proposal on April 19. AIMA’s response encourages the FTC to withdraw the Proposal entirely. However, absent withdrawing the Proposal, we argue that a final rule should:
- be limited to only non-compete agreements subject to U.S. State law;
- avoid establishing a bright-line test based on an employee’s title and/or salary;
- explicitly preserve employers’ ability to maintain the use of appropriate NDAs and contractual confidentiality terms; and
- not include a rebuttable presumption against non-compete agreements as an alternative to the proposed categorical ban on such clauses.
Due to a number of factors, including a massive volume of public comments (nearly 27,000) the FTC received and must review, the FTC’s vote on the Proposal is unlikely to take place until April 2024.
Please contact Daniel Austin, Aniqah Rao or Suzan Rose with any questions regarding these events.
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On April 23, the US Federal Trade Commission (“FTC”) voted with a 3-to-2 majority to pass its Non-Compete Clause Rule (“the Rule”) proposed in 2023, broadly banning the use of noncompete clauses by employers.
The Rule varies somewhat from the January 2023 proposal, which was an outright ban. Specifically, the Rule:
- Bans new noncompetes for all workers, including senior executives, as of the effective date (120 days).
- Existing noncompetes can remain in effect for senior executives but are unenforceable for all other workers after the effective date.
- Defines the term “senior executive” as workers earning more than $151,164 annually who are in a “policy-making position.”
The dissenting – and recently added – Commissioners Holyoke and Ferguson cited, among other factors, their strong belief that the FTC did not have the statutory authority to issue the Rule, reminding it of the need for Congressional authorization and of the Major Questions doctrine.
For those of you following the proposal, this outcome probably comes as no surprise. The FTC has issued harsh criticism of noncompete clauses and has the strong support of the Biden administration. Note that the Rule is one of many efforts at the federal, state, and local level to ban or severely restrict the use of noncompete clauses, which already is law in California, Minnesota, North Dakota, and Oklahoma.
As AIMA members may recall, a separate proposal by New York state was vetoed in December. However, that legislative defeat was quickly countered by renewed local efforts: On February 28, the New York City Council released three proposals with varying approaches to restricting or banning noncompete use, which would apply to New York City workers. Noncompete bans are a popular agenda item for progressive lawmakers and are unlikely to go away, given the ability to flexibly enact legislation at varying levels where other attempts fail.
Although the FTC Rule applies at the federal level, which supersedes state and local law, any less restrictive aspects could be supplemented by more restrictive covenants existing at the state and local level across the US. Effectively, state and local governments cannot choose to disregard Federal restrictions, but they could fill in any perceived “weaknesses” in the Rule, thereby exceeding the FTC’s requirements – such as the carve out for existing senior executive noncompetes.
The US Chamber of Commerce has repeatedly stated its intention to litigate this Rule, and it is backed by a sizeable coalition of associations, organizations, and agencies across the country. Although AIMA is a member of this coalition, it expects the litigation to be funded by larger coalition members at far greater risk. Nonetheless, AIMA will remain involved in the coalition and update members on any developments. Please contact Suzan Rose with questions on this matter.
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Federal Judge Grants Stay, Injunction Temporarily Halting US FTC Noncompete Rule
On July 3, the US District Court for the Northern District of Texas (the “Court”) issued a ruling in the litigation challenging the Federal Trade Commission’s (“FTC”) final rule (the “Rule”) prohibiting employers’ use of non-compete agreements. As AIMA members may recall, the Rule was finalized on April 23, with litigation filed almost immediately thereafter.
In its ruling, the Court granted a stay and preliminary injunction to prevent the Rule from taking effect against the plaintiff and plaintiff-intervenors while the litigation is pending. Most notably, the judge held that the plaintiff and plaintiff-intervenors were likely to succeed in their action to vacate the Rule because the FTC lacked authority to issue a non-compete ban, stating that the FTC Act doesn't "expressly grant the [FTC] authority to promulgate substantive rules regarding unfair methods of competition."
Although the stay and preliminary injunction only apply to the plaintiff and plaintiff-intervenors in the litigation, the legal rationale – that the FTC lacked the authority to promulgate the Rule – increases the likelihood that the Rule will be vacated by the Court in its entirety (just as the Private Fund Adviser Rules were relative to the SEC). Nonetheless, the Court has committed to issuing a final ruling in the case, including ruling on the plaintiff’s request that the Rule be vacated in its entirety, by Aug. 30, 2024 – less than a week before the Rule’s September 4 effective date. The FTC has declined to provide a voluntary stay of the Rule.
In the meantime, a separate challenge is ongoing in the US District Court for the Eastern District of Pennsylvania. There is a hearing on July 10 on the plaintiff’s motion to temporarily block the Rule, and a decision in that case is expected by July 23. Also, a third challenge was recently filed, on June 21, in the US District Court for the Middle District of Florida, that requests a preliminary injunction. The plaintiffs in both the Pennsylvania and Florida cases have made additional filings to highlight the Texas court ruling as supplemental authority. Please note that the three challenges are taking place in different circuits, each of which is not beholden to a ruling within another circuit. However, actions in one case can meaningfully impact continuing litigation in another.
We will continue to monitor this issue and update AIMA members accordingly. For questions regarding this summary, please contact Suzan Rose.
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Federal Judge Sets Aside US FTC Rule to Ban Noncompetes, Rule Will Not Go Into Effect
On August 20, the U.S. District Court for the Northern District of Texas (the “Court”) set aside the Federal Trade Commission’s (FTC) rule banning employment noncompete agreements (the “Rule”). In doing so, the Rule cannot be enforced or otherwise take effect on its intended effective date of September 4, 2024, or thereafter.
The Court had issued a ruling in July, granting a stay and preliminary injunction to prevent the Rule from taking effect against the plaintiff and plaintiff-intervenors while the litigation was pending. Consistent with that ruling, in this decision, the judge cited the FTC’s lack of authority to issue a non-compete ban, and further deemed the Rule arbitrary and capricious, noting a lack of evidence as to why the FTC chose to impose such a sweeping prohibition on noncompetes.
As AIMA members may recall, there were two additional challenges to the Rule, one in the US District Court for the Eastern District of Pennsylvania, and one in Florida Middle District Court. On July 23, the Pennsylvania Court denied the plaintiffs’ motion for stay of effective date and preliminary injunction. On August 15, the Florida Court granted the plaintiff’s motion for stay of effective date and preliminary injunction and further enjoined the FTC from implementing or enforcing the Rule against the plaintiff.
Nonetheless, the Court’s August 20 decision cites the Administrative Procedures Act’s (the “APA”) requirement to “hold unlawful and set aside agency action, findings, and conclusions found to fulfill certain criteria, such as being arbitrary and capricious and being in excess of statutory authority. Having fulfilled the APA criteria, the Court noted that the APA does not contemplate party-specific relief, and that “setting aside agency action…has ‘nationwide effect,’ is ‘not party-restricted,’ and ‘affects persons in all judicial districts equally.” The Court’s ruling therefore applies to everyone, effectively voiding the Rule.
The FTC has stated that it is considering a potential appeal and noted that the ruling does not prevent the FTC from addressing noncompetes through case-by-case enforcement actions. However, absent a successful appeal, the FTC cannot rely on the Rule as a basis for such enforcement.
For questions regarding this summary, please contact Suzan Rose.
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FTC Files Appeal to Ryan LLC Decision, Ruling Unaffected in the Interim
On October 18, the Federal Trade Commission (“FTC”) filed a Notice of Appeal of the August 20 final judgement by the District Court for the Northern District of Texas (the “Court”) in the Ryan LLC case, which set aside the FTC’s Noncompete Rule.
The appeal largely was expected, although it represents a considerable uphill challenge for the FTC. Although it had prevailed in the ATS Tree Services case in Pennsylvania, it also lost in the challenge from the Properties of the Villages in Florida. This, coupled with the strong rebuke by the Texas Court in its decision that it now is being asked to reconsider, certainly does not bode well for the appeal.
Nonetheless, we must wait to see the outcome of the appeal, the proceeding for which has not yet been scheduled by the Court. Thereafter, it is likely to take additional time before a decision on the appeal is made. Any projections on timing are likely to be informed by the schedule set by the Court.
As a reminder, the FTC is not prevented from addressing noncompetes through case-by-case enforcement actions. However, absent a successful appeal, the FTC cannot rely on the Rule as a basis for such enforcement.
We will continue to update AIMA members as material developments arise. For questions regarding this summary, please contact Suzan Rose.
U.S. State Laws
New York Non-Compete Agreement Ban Proposal – State Law
New York State is considering an outright ban on the use of non-compete provisions in employment agreements. Having long been a “reformation” state, New York has allowed for post-employment restrictive covenants as long as the restraint (1) is no greater than is required for the protection of the legitimate interest of the employer; (2) does not impose undue hardship on the employee; and (3) is not injurious to the public. Instead, New York would now join California, North Dakota, Oklahoma and Minnesota, becoming the fifth state with a full ban.
Earlier in 2023, the New York State legislature proposed two bills which, if enacted, would ban all post-employment non-compete agreements. Of the two, Senate Bill S3100A, proposes an outright ban and is focused exclusively on non-competes. Senate Bill S6748, referred to as the "Twenty-First Century Anti-Trust Act" is more generally aimed at preventing monopolies, monopsonies, and other restraints of trade, including non-compete agreements.
Both bills were passed by the State Senate in June, but S3100A has since been passed by the State Assembly and will advance to Governor Kathy Hochul for signature later this year. In contrast, S6748 was delivered to the Assembly and has been referred to committee; it is not in focus and is not expected to proceed further, with all efforts now invested into S3100A.
If signed into law in its proposed form, S3100A would void any agreement containing prohibited non-compete provisions. Employers in violation of the law would be subject to potential litigation and liquidated damages. The proposed form of S3100A, which is two pages in length, contains little in the way of precise detail and raises many questions. It contains a very broad definition of “non-compete agreements”[1]: “any agreement, or clause contained in any agreement, between an employer and a covered individual that prohibits or restricts such covered individual from obtaining employment, after the conclusion of employment with the employer included as a party to the agreement.”
While S3100A lacks much-needed clarity, unlike proposed S6748, it does not appear that it will apply retroactively to existing agreements. Rather, it would impact any agreements entered into or modified as of the law’s effective date. However, we note that courts in other states have held that modifications to an employee’s employment terms – such as a compensation change or promotion – constitute a qualifying modification to subject an employment agreement to subsequently passed legislation. It is unknown whether New York courts could take that approach but should be considered as a possibility.
In its scant detail, Bill S3100A as proposed also does not include sale of business provisions nor any exemptive salary thresholds. In Governor Hochul’s previously stated support for banning non-compete agreements, she promised to eliminate them for workers making below the median wage in New York State, which is a salary of approximately $50,000 in 2023.
Absent a wage threshold, the intent of S3100A exceeds Governor Hochul’s publicly stated views. This is important to note because New York allows the Governor to make chapter amendments to bills as they are being signed, whereby she can agree in advance with legislative leaders on amendments, outline the amendments in an approval message when signing the bill, then have those amendments adopted by the legislature. Chapter amendments are said to occur in approximately 11% of all bills in New York and are viewed by many to be all but certain for S3100A.
Given the potential for chapter amendments, advocacy is now well underway. We have been in touch with lobbyists, labor attorneys and advocacy groups who are directly involved in proposing amendments to S3100A. They have met with the bill’s sponsors, other members of the State Assembly, and Governor Hochul, who is said to be “deep in thought” on potential changes. Members of the Assembly have acknowledged that they had not expected the bill to be as problematic as it is, which points to the impact that advocacy efforts have had to date. Groups representing businesses in New York State and New York City in particular have already put forward a number of amendments to the bill that attempt to address their collective interests, including those of the financial services industry. However, advocacy is occurring simultaneously in opposition and support, and there is strong support for an outright ban as proposed by the AFL-CIO, which has considerable influence in New York State matters.
Proposed Amendments by New York State and City Groups
AIMA has been briefed on the details of amendments proposed by two prominent business groups that are working jointly to share their views with the legislature and Governor Hochul. Their proposed amendment drafts were submitted separately within the past week but essentially are identical. They include both a compensation threshold and sale of business provisions among the various issues they seek to address. Of note, they have proposed a compensation (not just salary) threshold of $200,000 for exclusion from the ban.
Specifically, the proposed changes add two definitions that factor into the threshold:
Highly Compensated Individuals: “Highly Compensated Individuals”, who would be excluded from the ban, are those who earn an annualized rate of cash compensation (including all wages, incentives, bonuses, vested restricted stock shares or units, commissions and other remuneration) equivalent to or greater than $200,000 per year or otherwise holds a bona-fide officer position with or is a board member (or equivalent or the relevant employer or its affiliate).
Incentive Compensation: “Incentive Compensation” is defined as including bonuses, equity compensation, stock options, restricted stock shares or units, performance stock shares or units, phantom stock shares, profits interests, carried interest, stock appreciation rights, deferred awards, or any other time-driven or performance-driven incentives for individual or corporate achievements, whether vested or unvested, paid or unpaid.
Within the proposed amendments is a definition of noncompetes that would exclude clauses or agreements that require forfeiture of eligibility or benefits for retirement, deferred compensation, severance/other post-termination payments or incentive compensation. As the bill as written did not define or reference incentive compensation, it is specifically put forward.
Also, there is a reference to ensure that noncompetes or similar covenants can be included and enforced for a partner of a partnership or similar, and for person or entity selling the goodwill of a business, or selling or otherwise disposing of ownership interest in a business (directly or indirectly) in connection with such transaction. This would carve out partners and others of similar rights and attempt to address sale of business concerns.
The proposed amendments strike Section 1.3, which outright voided all noncompetes. The amendments also:
- Reiterate rights under other applicable laws and regulation that protect against disclosure of trade secrets or confidential or proprietary information in the solicitation of, or association with, former employees
- Protect non-solicitation provisions used to comply with federal securities laws, rules or regulations promulgated by a self-regulatory organization as defined in the Securities Exchange Act of 1934 (such as FINRA)
- Allow for severability of unenforceable clauses without rendering entire contracts or agreements containing those clauses as unenforceable or void
- Prevent the law from restricting or limiting existing legal remedies to protect trade secrets; and
- Prevent retroactive application of the law to existing agreements when they are modified: (a) to change the terms of the non-compete agreement for the benefit of the employee; (b) by the periodic renewal or extension of any contract or agreement; or (c) other changes to terms of a contract or agreement for the benefit of the employee which do not result in changes to the terms or scope of the non-compete clause.
Next Steps
Under the Biden administration, there is a continuing push to narrow the use of non-competes and scrutiny of restrictive covenants in general. The Federal Trade Commission’s (“FTC”) recent proposal to ban noncompetes on a national level has a longer timeline and may succumb to legal challenge because it is believed to exceed the agency’s administrative authority. Whatever the outcome, the FTC effort has served as a signal for more progressive states to take action against noncompetes. New York is one such supportive state and its actions are likely to encourage other states considering changes to noncompete rules.
Bill S3100A has been passed by the State Senate and Assembly but has not yet been formally presented to Governor Hochul. It is expected that will occur toward the end of 2023. In New York, once a bill is delivered to the Governor's desk, it must be acted upon within 10 days. Furthermore, a resulting law – in whatever final form due to any potential chapter amendments – will go into effect within 30 days of signature. The lack of an extended implementation period means that businesses must consider now what changes they may need to make in the face of a full or partial ban of noncompetes.
Please reach out to Suzan Rose with any questions.
November 2023: Update to New York Non-Compete Agreement Ban Bill
Further to the summary above, there has been a development to the New York non-compete bill S3100A.
AIMA has been informed by the Business Council of New York State and other lobbyists in Albany that the chapter amendments to the bill that were proposed this July – which were summarized in AIMA’s previous update and inserted more reasonable terms into the bill – are no longer under consideration.
Recently, Governor Hochul’s office reached out to the state legislature to discuss the proposed chapter amendments. However, these amendments were strongly opposed by trade unions with considerable influence in New York State matters. These unions felt the proposed amendments “gutted” the bill. The bill itself was passed by the legislature at the unions’ urging, so the proposed amendments are now effectively off the table. Therefore, the Governor is, at this time, left with the choice of either signing the bill as-is or vetoing it outright.
As mentioned in AIMA’s prior summaries, S3100A – absent amendment – will void any non-compete provisions in a contract. It does not include sale of business provisions nor any exemptive salary thresholds, which were among other aspects the proposed chapter amendments intended to add. The bill is very harmful to the many AIMA members who use noncompete agreements. Nonetheless, employers in violation of the law would be subject to potential litigation and liquidated damages. Meanwhile, the bill, which is two pages in length, contains little in the way of precise detail beyond its absolute requirements, adding uncertainty to the mix of concerns. Nondisclosure agreements (“NDAs”) still are allowed, but only on the condition that they do not “otherwise restrict competition in violation of [the bill]”. Thus, any existing or proposed NDA should be carefully reviewed to ensure it is compliant with the bill.
The Governor’s action – whether to sign into law or to veto – is required within 10 days after the bill is formally delivered to her desk; this will occur by the 2023 calendar year end. If signed, the resulting law will go into effect 30 days following signature. Consistent with AIMA’s prior guidance, the lack of an extended implementation period means that businesses must consider now what changes they may need to make in the face of what now would be a full ban of non-competes.
Lobbying efforts will continue, to persuade Governor Hochul to veto the bill now that the proposed chapter amendments will not be able to add reasonable, practical terms to the bill to accommodate legitimate business needs. The Business Council of New York State has launched an advertising campaign to highlight the damage S3100A will do to New York’s already-struggling economy. We will review any potential action with AIMA members and provide further updates as available.
For questions on this update or about New York S3100A, please contact Suzan Rose.
[1] At Section 1, § 191-d (a)
UK Requirements
On 4 December 2020, to support economic recovery from the impacts of COVID-19, the UK Government for Business, Energy and Industrial Strategy launched a consultation on measures to reform post-termination non-compete clauses in contracts of employment. The Government sought to explore avenues to boost innovation, create the conditions for new jobs and increase competition.
The Government sought views on two options for reform:
- Mandatory compensation
Proposals to make non-compete clauses enforceable only when the employer provides compensation during the term of the clause (with potentially additional transparency measures and statutory limits on the length of non-compete clauses).
- Ban on non-compete clauses
An alternative proposal to make post-termination, non-compete clauses in contracts of employment unenforceable.
The consultation closed on 26 February 2021 and AIMA submitted a response (detailed below).
On 12 May 2023, the Government Department for Business and Trade* published a response to its consultation on measures to reform post-termination non-compete clauses in contracts of employment.
As AIMA had advocated for, the Government stated that it will not proceed with Option 2 (a ban on the use of post-termination non-compete clauses in contracts of employment). Also, under Option 1, the Government stated that it will not proceed with making post-termination non-compete clauses in contracts of employment enforceable only when the employer provides compensation during the term of the clause. However, the Government announced its decision to introduce a statutory limit on the length of non-compete clauses and impose a limit of 3 months. The statutory limit of 3 months will be applied to non-compete clauses only and in contracts of employment and limb(b) worker contracts only. A full overview of the Government’s response is provided below.
*Please note, in 2023 the Government Department for Business, Energy and Industrial Strategy was split to form the Department for Business and Trade, the Department for Energy Security and Net Zero and the Department for Science, Innovation and Technology. Responsibility for national security and investment policy has moved to the Cabinet Office.
Overview of the Government’s changes
As set out in its response, the Government will proceed with the following:
- It will not ban the use of post-termination non-compete clauses in contracts of employment.
- It will not legislate to make post-termination, non-compete clauses in contracts of employment enforceable only when the employer provides compensation for the period the clause prohibits the individual from working for a competitor or starting their own business.
- It does not intend to change the existing legal position that employers can unilaterally waive a non-compete clause. The Government notes that as part of best practice, employers should regularly review their use of non-compete clauses and assess whether they are still necessary to protect a legitimate business interest
- It will include workers' contracts in the scope of the reforms. The Government notes that under current common law there are very few constraints on the use of non-compete clauses in employment contracts and its estimates suggest that they are widely used across the labour market. The Government therefore intends to apply reforms to non-compete clauses to workers and employees equally.
- It will enhance transparency where non-compete clauses are used by producing guidance on non-compete clauses.
- It will introduce a statutory limit on the length of non-compete clauses and impose a limit of three (3) months.
The Government will apply the statutory limit of three months to non-compete clauses only, and in contracts of employment and limb(b) worker contracts only. The Government does not propose extending this reform to wider workplace contracts as difficulties in defining ‘wider workplace contracts’ could lead to increased litigation as to when the reforms do/do not apply.
When a non-compete does not exceed the three months statutory maximum, it is the Government's intention that common law principles should continue to apply. The starting point being that restrictive covenants that restrain trade are unenforceable unless they are shown to be reasonable.
AIMA engagement
AIMA submitted a response to the Government’s consultation.
In our response we highlighted the following points:
- The Government should neither require compensation for non-compete clauses nor require compensation where other restrictive covenants are used.
- We do not agree with mandating compensation in employment contracts or where non-compete clauses are used in wider workplace contracts, such as consultancy agreements, partnership agreements and Limited Liability Partnerships
- if mandatory compensation were applied in respect of non-compete clauses then members would increase their use of non-solicitation, non-dealing and nonpoaching restrictive covenants.
- AIMA does not believe that employees would be more likely to comply with the terms of a non-compete clause if mandatory compensation were introduced.
- We believe that employers should retain the flexibility to unilaterally waive a non-compete clause.
- AIMA believes that there should not be any fixed time-period before termination within which an employer must waive a non-compete clause.
- AIMA would not support the inclusion of a statutory maximum limit on the period of noncompete clauses.
- AIMA does not support a ban on non-compete clauses in contracts of employment or wider workplace contracts such as consultancy agreements, partnership agreements and Limited Liability Partnerships.
- AIMA believes that the Government should neither ban non-compete clauses nor ban other restrictive covenants.
Next Steps
The Government will bring forward legislation to introduce the statutory limit when parliamentary time allows. The statutory limit will apply to Great Britain (England, Wales and Scotland), as employment law is devolved to Northern Ireland. The Government will continue to engage and work closely with officials in the Northern Ireland Civil Service.