Non-Compete Reform: What Lessons Can the UK Learn from Other Jurisdictions?

The Government has published a new working paper exploring major reforms to non-compete clauses in employment contracts. The potential options under consideration include:

1. a statutory limit on the length of non-compete provisions
2. a statutory limit linked to business size
3. restricting the use of non-compete clauses to high earners only; and
4. an outright ban on non-compete clauses.

The objectives behind these potential reforms are to:

• boost labour market dynamism by making it easier for workers to move roles or establish their own start-up
• reduce barriers to recruitment so that high productivity, innovative businesses can access the talent they need
• promote competition and innovation by ensuring the UK’s most talented experts, innovators and entrepreneurs can move more freely
• protect workers so they are not forced into lengthy periods out of the labour market, often for six to twelve months, and unable to fund the cost of challenging an unreasonable restriction

As the Government considers its next steps, it is sensible to look at how other jurisdictions regulate non-compete agreements and whether their approaches offer useful lessons for the UK. We note that the Working Paper has looked elsewhere at referred to other jurisdictions at paragraphs 25 and 26 of the Working Paper.

Option 1: A statutory limit on the length of non-compete restrictions

On 10 May 2023, the Government announced an intention to introduce a statutory three month limit on non-compete clauses. Para. 28 of the Working Paper refers to a YouGov poll showing that 71 percent of non-competes exceed this length. It appears from the Working Paper that this length is being considered again.

International examples European jurisdictions including Germany, France, Austria and Denmark have statutory limits. These regimes typically allow significantly longer periods than three months but require employers to pay compensation throughout the restricted period. The UK’s proposal would be unusual because it caps the length but does not require mandatory compensation.

Positives

• Provides clarity and reduces the scope for disputes.
• Offers a reasonable balance between an employer’s legitimate interests and an employee’s need to work without being sidelined for long periods.

Negatives

• Employees may still be discouraged from moving jobs if they face three months without income.
• Employers may rely more heavily on lengthy notice periods or garden leave to achieve the same effect.

Option 2: A statutory limit linked to business size

International example: Belgium links the permissibility of non-competes to business size, salary level and whether the employer operates in certain designated sectors.

Positives

• Prevents inconsistent use across micro businesses and large corporates.
• Encourages proportionality, with restrictions justified only where the scale of the business creates a genuine competitive risk.

Negatives

• Boundary issues arise when businesses grow or change category.
• Smaller employers may struggle to protect their legitimate interests if they fall outside the permitted criteria.
• The multi-factor approach increases administrative complexity.

Lesson for the UK

A size-based regime may be well-intentioned but risks creating confusion. Any such approach would require simple, carefully defined thresholds.

Option 3: Restricting the use of non-competes to high earners only

International example: Washington restricts non-competes to employees earning above an annually adjusted threshold. In 2025 this is $123,394.17, approximately £93,500.

Positives

• Prevents misuse against junior or low-paid employees.
• Has reduced lower-level litigation concerning unenforceable non-competes.

Negatives

• Difficult boundaries, particularly where pay consists of bonuses, commission or fluctuating earnings.
• Employers may restructure remuneration to meet thresholds.
• Some employees below the threshold still have access to confidential information or key client relationships and could cause harm if they move to a competitor.

Lesson for the UK

A salary threshold can work but only with a clear and consistent definition of “earnings”.

Option 4: A complete ban on non-compete clauses

International example: California and, more recently, Minnesota

Positives

Research on California’s long-standing prohibition suggests it contributes to:

• higher worker mobility
• faster wage growth
• stronger innovation and regional clustering, particularly in the tech sector

These outcomes are linked to the ease with which employees can move between employers, accelerating knowledge spillover.

Negatives

Employers still seek to protect their interests through:

• robust confidentiality agreements
• aggressive enforcement of trade secrets obligations
• IP assignment clauses
• greater use of non-solicitation provisions

This has, in some cases, shifted the battleground rather than eliminating disputes, with litigation focusing on alleged misuse of confidential information.

Lesson for the UK

A full ban could boost mobility but would need to be paired with clear and modernised trade secrets guidance to avoid an increase in litigation.

Other Options to Consider

Mandatory paid compensation

International example: Germany permits non-competes for up to two years but requires employers to pay at least 50 percent of the employee’s average total remuneration throughout the restricted period.

Positives

• Clear rules reduce litigation.
• Employers only impose non-competes when truly necessary.
• Employees receive financial support while out of the market.

Negatives

• Increased cost for employers, which may reduce flexibility.
• Employees receiving compensation may be less motivated to find alternative work in a non-competing sector.

Lesson for the UK

Compensation requirements would likely deter over-use but could increase disputes elsewhere in the system.

A specialist tribunal for restrictive covenant disputes

This is the reform I would personally recommend.

The high cost of High Court litigation is a significant barrier for both employers and employees. Even well-paid employees struggle to fund the risk of an interim injunction application, where costs can easily exceed £30,000. This often forces employees to give undertakings that are not in their interests or prevents them challenging unfair restrictions at all.

A specialist tribunal with experienced judges should handle these disputes with:

• a streamlined process to ensure quick hearings
• a capped costs regime, for example limiting recovery to £10,000 for the successful party

Positives

• Reduces the existential cost risk for employees who want to challenge unreasonable restrictions.
• Encourages employers to ensure their covenants are genuinely necessary, proportionate and defensible.

Negatives

• Establishing such a tribunal would require significant public investment.
• Even with capped recovery, the winner may still face legal costs higher than the amount recoverable.

Conclusion

As the UK considers the future of non-compete regulation, the central challenge will be identifying a regime that balances:

• flexibility for employers
• fairness and mobility for workers
• simplicity and legal certainty

Reforms must also be clear and introduced with sufficient lead-in time for businesses to adapt. The Government should take account of the lessons from the United States, where the Federal Trade Commission’s attempted nationwide ban led to uncertainty and inconsistency, and from other jurisdictions such as Australia, Canada, Singapore and New York, where restrictions on non-competes often push disputes into related areas such as confidentiality, IP and non-solicitation.

What would I do?

Reform is necessary. Non-compete clauses are frequently used in circumstances where they are unlikely to be enforceable, yet employees feel unable to challenge them for fear of crippling costs. This restricts mobility and creates an uneven playing field. That said, non-competes have a valid place, particularly for smaller businesses and start-ups that rely on protecting confidential information, client relationships and team stability.

My recommended approach would be:

1. Limit non-compete periods to three months.
2. Require employers to pay 60 percent of salary during the restricted period, with non-payment rendering the restriction unenforceable.
3. Create a specialist tribunal system to ensure these complex disputes are resolved efficiently and without exposing either party to financial ruin.

This combination would provide clarity, fairness and proportionality while preserving legitimate business protection.

Wish to discuss this topic further? Reach out to Matthew Hodson.