The 2026 Autumn Budget and non-compete clauses

02/11/26 – In the 2026 Autumn Budget the Chancellor announced that the government proposes to carry out a consultation on non-compete clauses with a view to introducing legislation “to make sure that non-compete clauses will no longer be a barrier to hiring for our most promising startups and scaling firms” (para 4.109).  This update looks at the existing law relating to employee non-compete clauses, provides some tips on drafting non-competes and has a go at predicting what the government may decide to do by way of reform.

Legal status of employee non-complete restrictions

The starting point is that any restriction on an employee’s ability to work following the termination of their employment (i.e. a post-termination non-complete clause) is void and an unlawful restraint of trade unless:

• the restriction protects a legitimate business interest, such as trade secrets or client connections, and
• the restriction goes no further than is reasonably necessary to protect that legitimate business interest.

The challenge for companies is that both the legitimate business interest to be protected and the scope/duration of the proposed non-compete restriction may differ from employee to employee – in the case of a Sales Director, for example, the legitimate business interest that needs to be protected is likely to the employer’s actual and prospective customers; whereas in the case of a Chief Product Officer the business interest is more likely to relate to the company’s products and roadmap.

Similarly if the Sales Director is responsible for marketing and distribution of the company’s products in Europe, a clause which restricts them from competing with the company in say the U.S. would almost certainly go further than reasonably necessary; by the same token, if the CPO is responsible for only one of the company’s three suites of products, a clause which restricts them from competing with “any of the company’s products” will also be vulnerable to challenge.

In short, employers who want effective, enforceable non-competes need to move away from having a one-size-fits-all in their employment contract templates and instead draft them on an individual basis having regard to:

• The role, responsibilities and seniority of the employee.
• The extent of the employee’s access to trade secrets, and the value and longevity of those trade secrets.
• The nature and quality of the employee’s relationships with the company’s clients, suppliers and other key stakeholders.
• The business or division that the employee works for, and the geographical area for which the employee is responsible.

Drafting tips

When drafting the non-compete itself, employers will want to:

• Be specific regarding the capacity and geographic areas in which the employee is restricted from working; avoid expressions such as ‘working in any capacity’ or ‘having any interest in’.
• Limit the duration of the restriction to a period that the employer would feel comfortable defending if challenged, particularly if looking to impose a non-compete of more than six months.
• Non-solicitation restrictions and non-dealing restrictions which apply to the employer’s customers are generally easier to justify than non-compete restrictions.  Consider whether a non-solicitation and/or non-dealing clause would secure an adequate level of protection, but with reduced risk of challenge.

In the leading 2019 case Tillman v Egon Zehnder Ltd the Supreme Court confirmed that courts will delete (or “sever”) unreasonable elements of restrictive covenants and enforce the remaining provisions if the employer can show that removing the offending wording will not significantly change the overall legal effect of the covenant.  But while the court may sever parts of a non-compete clause it will not replace severed language with acceptable wording or otherwise amend an unreasonably broad (and unenforceable) restriction.  And the Supreme Court made it clear that an employer who ends up having to ask the court to sever elements of a non-compete clause should expect adverse cost consequences (i.e. be required pay some of the employee’s legal costs), even if the employer is ultimately successful in enforcing the non-compete.

Options for reform

Previous government consultations have looked at a broad range of options regarding non-compete clauses, including:

• Absolute limits on duration, ranging from 1 – 12 months.
• Limits on duration depending on company size.
• Ban below a salary threshold (as has been implemented in several U.S. states and other countries).
• Hybrid approach, i.e. salary threshold plus a cap on duration.

My view is that the government will be reluctant to put a cap on the duration of non-compete – recognising that in the case of some senior employees restrictions of 12 months+ are appropriate and proportionate – and instead legislate for a statutory salary threshold below which employers may not impose non-competes. I also expect that any reform will be limited to non-compete restrictions, and that the lawfulness of non-solicitation and non-dealing restrictions will be unaffected.

© Marcus Andreen 2026

Tags: budget 2026, employment contract, non-compete, restrictive covenant
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