The government is planning to crack down on restrictive employment contracts for low paid workers as well as reviewing non-compete clauses, which are popular in the legal and IT sectors
If the current position is overturned, the government claims that up to 1.8 million low paid workers would benefit as they would be able to choose where to work outside their core contract.
Kate Palmer, HR advice and consultancy director at Peninsula said: ‘Controversy connected with exclusivity clauses is not new; measures were taken back in 2015 to ban them from use in zero hour contracts.
‘This means that some employers will already be familiar with when they can and can’t use them. However, with the possibility that they will have to be removed from all contracts which meet the government’s criteria, many more employers will need to prepare for the consequences.
‘Employment contracts would need to be reviewed and any clauses requiring exclusivity are likely to be replaced with something more flexible whilst still maintaining some control for the employer over any other work that the employee takes on.’
Non-compete clauses
Another significant change would ban employers from using non-compete clauses that prevent departing employees, particularly those working in technology, legal and other sectors from starting up or joining competing businesses when they quit their employers to move to a new position.
The move will ensure talented individuals have the freedom to apply their skills in another role if they wish while driving investment in new start-ups, the government claimed.
The non-compete proposals on the table include either an outright ban on use, or setting up a compensatory element to protect affected employees with statutory limits on their use.
The options are:
- proposals to make non-compete clauses enforceable only when the employer provides compensation during the term of the clause, and whether this could be complemented by additional transparency measures and statutory limits on the length of non-compete clauses; and
- an alternative proposal to make post-termination, non-compete clauses in contracts of employment unenforceable.
Business minister Paul Scully said: ‘As part of our plans to build back better from coronavirus, we want to encourage innovation like never before, supporting creative start-up ventures and talented workers across the UK.
‘These changes to non-compete clauses will remove a major barrier for innovators and entrepreneurs allowing them greater freedom to start new businesses, find new work and apply their skills to drive recovery and growth for the UK economy.’
On the low paid, the consultation is considering views on banning the use of exclusivity clauses in contracts, which prevent workers from taking on additional work with other employers. This would apply to a worker whose guaranteed weekly income is below the Lower Earnings Limit, currently £120 a week.
It will also expand the pool of talent available 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 contracts.
Business secretary Alok 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.’
Plans involve introducing a mandatory compensation requirement 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.
The government is also seeking views on whether it is necessary to go further and ban non-compete clauses all together.
Exclusivity clauses were banned for workers on zero hours contracts in 2015 as their working hours are not defined.
Andy Chamberlain, director of policy at 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.’
The reforms are part of the government’s covid-19 recovery plan tagged ‘build back better’, ensuring the UK’s recovery from the Covid turndown ‘creates new jobs, increases competition and maximises opportunities for the most talented innovators, job creators and entrepreneurs in the UK’.
The consultations close for comment on 26 February 2021.
BEIS consultation on measures to extend the ban on exclusivity clauses in contracts of employment
By Sara White