Employment Law Coffee Break | Covid-19 vaccination and your staff; and proposed reforms to post-termination non-competition provisions

Written on 10 Dec 2020

Welcome to our Employment Law Coffee Break where we highlight the latest developments and issues impacting UK employers.

Covid-19 vaccination and your staff

With the vaccination roll-out now commenced, employers are asking what they can or should be doing regarding the vaccination of their staff. Whilst there is no government mandated vaccination requirement, some employers are considering whether to impose a compulsory vaccination requirement on their staff. Our podcast this week looks at the employment and health and safety issues employers must consider and the practical steps they can take.

Listen to our podcast here.

Proposed reforms to post-termination non-competition provisions as government seeks to unleash innovation and maximise opportunities

Recognising that the impact of Covid-19 has reached "deep into our economy and society", as part of the drive to economic recovery and its desire to "unleash innovation, create the conditions for new jobs and increase competition", the government has published a consultation looking at the continuing role of non-competition clauses. Such clauses are routinely included in employment contracts as a barrier to an individual taking up new employment or starting a new business within a period of time to protect confidential information and key contacts.

Whilst the consultation focuses on non-compete clauses in employment contracts; it raises questions as to whether reforms should be extended to other forms of post-termination restraints (non-dealing, non-solicitation, non-poaching and protection of good will) and to wider workplace agreements.

We will be responding to the consultation and welcome your contributions; we will be in touch in the New Year.

Regulation by the courts

At present, such clauses are regulated by the courts; balancing a person's freedom to trade against the need to uphold contracts and protect an employer's legitimate business interests as part of a contract. Non-competition clauses (along with other restraints of trade) are presumed to be unenforceable unless an employer can show that they protect a legitimate business interest and they are no wider than reasonably necessary to protect that interest.

Should employees be compensated?

Of particular interest to the government is the option on to make post-termination non-compete clauses in employment contracts enforceable only when the employer provides compensation to the employee during the term. The government's hope is that this would "discourage the widespread use of non-compete clauses"; with employers considering more carefully whether the use of a non-compete clause is necessary and reasonable for the particular role. The level of compensation considered would be a percentage of the former employee's average weekly earnings prior to termination during the non-competition restraint. The government has requested views on the applicable percentage (the consultation document expressly suggests a range from 60% to 100%).

The government has recognised in the consultation document that such a reform could give rise to greater use of gardening leave and other indirect restraints, such as forfeiture provisions (whereby an employee loses deferred stock or cash incentives if they join a competitor) being used. Concerns over employers unilaterally waiving a non-compete provision immediately prior to termination, yet having stalled the employee's preparations to take up alternative opportunities, would also need to be addressed.

Greater transparency and fixing a maximum duration

To accompany this option, the government is also looking at requiring greater transparency, with employers required to disclose the exact terms of a non-compete agreement in writing before they enter into the employment contract and introducing a specified maximum period. In practice, many employees will already agree to post-termination restrictions as part of the package offered to them on commencement. A maximum duration will bring certainty to a notoriously difficult area, although there is a risk that any maximum specified becomes the default whereas a shorter duration may still only be reasonable in many cases.

Banning non-compete clauses

Alternatively the government is considering a total ban – making post-termination non-compete clauses in contracts of employment unenforceable. As well as certainty for all parties it is felt that this "could have a positive effect on innovation and competition by making it easier for individuals to start new businesses and enabling the diffusion of skills and ideas between companies and regions". However, the government has stated that the scope of a ban would need to be clearly defined and is considering whether there would need to be some exemptions.

Next steps

Employers must now wait for the outcome of the consultation (which closes on 26 February). With the end of the Brexit transition period on 31 December 2020, it is possible the government will use this as an opportunity to demonstrate its commitment to driving UK employment law forward. The consultation paper gives examples of how other European countries already compensate employees for time spent on restrictions but also points to California as being home to some of the world's most "innovative organisations" where non-compete provisions are banned and Israel which has established itself as "one of the most innovative and entrepreneurial economies in the world" where the enforceability of non-compete clauses has been "significantly limited".

Given the uncertainty around the enforceability of post-termination restrictions and against the backdrop of potential change (not necessarily limited to non-compete provisions despite this being the main thrust of the consultation), employers would be sensible to assess their legitimate business interests and the existing measures they have in place to protect these and what more may now be necessary in the event that change is on the cards. Interestingly, the consultation asks "how do you think your business/organisation would respond to a ban on a non-compete clauses". This is now a question that every employer should sensibly be asking itself.

Given the ever changing technological and legal landscape, it is critical for businesses to protect their confidential information and relationships from threats within their workforce; please see more details on the issues we are supporting clients on here.