Policy paper

Working paper on options for reform of non-compete clauses in employment contracts

Published 26 November 2025

General information

Working paper details

Issued: 26 November 2025

Respond by: 18 February 2026

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Working paper description

1․ This paper invites views on options to reform non-compete clauses in employment contracts. It seeks input on alternative policy options, which would support the government’s growth mission, including:

• introducing statutory limits on the length of non-compete clauses
• banning non-compete clauses in employment contracts
• banning non-compete clauses below a salary threshold
• combining a ban below a salary threshold with a statutory limit

It is part of the government’s approach and commitment to a dynamic labour market that enables people across the country to seize the opportunities of employment and drives economic growth.

2․ This paper poses a series of questions to inform engagement with relevant stakeholders before determining which of these proposals are taken forward. 

Introduction 

3․ As part of the growth mission, this government is committed to delivering higher living standards in every part of the UK. The main route to higher living standards is through good, productive jobs, stable employment, and a thriving business environment.

4․ To deliver on this commitment, the government is seeking opportunities to reduce barriers for the businesses, entrepreneurs and investors who are important to boosting economic growth. Start-ups, scale-ups and other small businesses drive the competition and innovation that keeps Britain growing. 

5․ The UK has a long list of successful start-ups, scale-ups and small businesses with the greatest density of scale ups among the 7 major industrial countries in the G7. There are close to 34,000 scale-ups in the UK – just 0.6% of small and medium-sized enterprises (SMEs) – yet they generate a staggering £1.4 trillion in turnover, contributing 55% of all SME revenues. 

6․ The government has already taken significant steps to support start-ups since taking office. We have extended the Enterprise Investment Scheme and Venture Capital Trust schemes to 2035 and increased research and development funding to £22.6 billion per year by the 2029 to 2030 financial year to support the growth of even more innovative businesses of the future. This support will allow them to invest and take on new staff, putting more money into working people’s pockets. 

7․ The government is exploring further opportunities to support the most talented innovators, experts and entrepreneurs in the UK so that we seize the opportunities of a future economy, from AI to net zero. Reform of non-compete clauses presents such an opportunity.

8․ Despite the UK having one of the most flexible labour markets among advanced economies, persistent low job mobility, weak competition in certain sectors, and low innovation are constraining productivity and economic growth. Non-compete clauses play a part in restricting employee movement, limiting knowledge spillovers, and can undermine incentives for innovation.

9․ Both UK and international evidence suggests that reform of non-compete clauses could help drive change, by:

• liberalising the UK labour market
• supporting start-ups and growing businesses to access talent
• improving competition
• providing millions of UK workers greater freedom to switch jobs, start new businesses and apply their skills to the greatest effect

Case for reform 

10․ Non-compete clauses are inserted into employment contracts to restrict an individual’s ability to work for, or establish, a competing business after they have moved on from a job. 

11․ The starting point under current law is that a non-compete clause, as with any clause in restraint of trade, is unenforceable, unless the employer can demonstrate it is reasonable, which is assessed by a court if a challenge is brought as to the clause’s enforceability. However, there are few constraints on employers including non-compete clauses in employment contracts, whether enforceable or not.

12․ The government is concerned about the behavioural effect of including a non-compete clause in an employment contract. Even if broadly drafted and unlikely to be enforceable, workers may perceive the clause as binding and comply with it for fear of legal repercussions.

13․ A YouGov survey during the previous government’s consultation found that around half of respondents believed their employer would be likely or very likely to enforce a non-compete clause. Most employees were aware of such clauses before signing their contract but a substantial number were not, and among those who were aware, few negotiated their terms. With claims brought in the county courts or High Court, the losing party will generally bear the winner’s legal costs, which could deter workers from taking any action which may risk legal proceedings. 

14․ Previous analysis suggests that non-compete clauses are widely used across the labour market, with around 5 million employees in Great Britain working under a contract that contains a non-compete clause with a typical duration of around 6 months. Research by the London School of Economics (LSE), led by John Van Reenen and others, found that non-compete clauses are more prevalent in the UK than in comparable US and European surveys, with around 26% of workers subject to them.

15․ A lack of dynamism poses a challenge for the wider economy, as we know it is an important channel for growth in the UK. Around 60% of the fall in trend productivity growth since 2008 is attributable to reduced movement of capital and labour between firms and sectors, and non-compete clauses are known to limit worker mobility. The Resolution Foundation also reports that sectoral and occupational reallocation in the UK is currently lower than in previous decades, indicating a slowdown in flexibility. 

16․ It is often assumed that non-compete clauses are only found in contracts of high earners, but research from the Competition and Markets Authority (CMA) shows they are common among lower-paid jobs. While prevalence is higher in senior roles, 20 to 30% of workers in lower-paid jobs believe they are covered by non-competes.

17․ Even if these clauses are unlikely to be enforceable if challenged in the courts, their presence can deter workers from moving jobs to secure better pay or working conditions, especially given the high costs and risks of legal challenges. Reforms to restrict non-compete clauses could therefore benefit low and medium earners as well as higher earners.

18․ Non-compete clauses can also restrict job mobility and put downward pressure on wages. There is broad consensus in the literature that they lower overall job mobility, particularly within the same industry and into roles that offer greater seniority. A 2019 study found that stronger enforceability of non-compete clauses leads employees to stay with their current employer, especially in knowledge-intensive occupations, and reduces moves to join early start-ups as an employee.

Similarly, a 2021 study found that greater enforceability of non-compete clauses decreased employees’ earnings by as much as 4%. The effect is even stronger among occupations, industries and demographic groups in which non-compete clauses are used more frequently. 

19․ Non-compete clauses can also act as a brake on entrepreneurial activity, both by blocking the emergence of new companies and by making it harder for them to grow. In the USA, the Federal Trade Commission (FTC) estimated that a ban on non-compete clauses at the federal level would lead to 8,500 more new businesses forming per year, an increase of 2.7%. Moreover, the FTC estimated that by alleviating barriers to knowledge sharing and allowing workers to form innovative new businesses, a ban would increase patents by between 20 to 34% per year.

20․ It is also argued that non-compete clauses can restrict competition by making it harder for smaller businesses to scale up. Once the company is established, the founders must hire employees with relevant skills to expand the business. Unless sufficient employees can be found amongst recent graduates, or the pool of the unemployed, existing firms are the primary source of potential hires – especially for firms with specific expertise needs.

21․ Therefore, start-ups could find themselves at a disadvantage in labour markets as their potential hires’ mobility is restricted by non-compete clauses that they have signed, and they may lack the legal and financial resources to challenge the non-compete clause. It is argued that by restricting the use of non-compete clauses, workers will have more freedom to start a new job or new business and enable the diffusion of skills and ideas between companies and regions.

This could lead to spillover benefits from existing innovations and incentivise businesses to invest in their own innovation. 

22․ However, the government recognises that non-compete clauses can also provide employers with the confidence to invest in training and upskilling their workforce. Evidence suggests that non-compete clauses are associated with higher levels of firm-sponsored training. A 2019 study finds that moving from no enforcement of non-competes to average enforceability is linked to a 14% increase in training aimed at upgrading or teaching new skills. This could be an important consideration given the long-term decline in workplace training in the UK.

Between 2011 and 2022, the average number of training days for all employees in England fell by 19% (from 4.3 to 3.5 days), and the average per trainee dropped by 25% (from 7.9 to 5.9 days). At the same time, employers report growing recruitment challenges, with skill-shortage vacancies more than doubling between 2017 and 2022 to around 531,000 (36% of all vacancies). This suggests that while skills gaps are widening, investment in training has not kept pace. We are therefore interested in any evidence on the impact of non-compete clauses on training and upskilling. 

23․ When looking at the impact of non-compete clauses on training in the UK, the CMA found that non-compete agreements are associated with slightly more opportunities for formal on-the-job training, but not other types of training. They concluded that the relatively similar levels of training and the widespread prevalence of non-compete clauses across industries and across income levels suggest that not all UK non-competes protect substantial training or client relationship investments. 

24․ It is also argued that non-compete clauses can incentivise employers to share access to valuable information (such as trade secrets, client lists, and other confidential information) and invest in innovation activities as they have greater protections in case the employee considers moving to a competitor or setting up a competing business. However, the literature lacks consensus on the question of whether banning non-competes leads to lower or greater innovation. In line with the literature, the FTC’s analysis of a US federal ban notes that research and development expenditure could either not be impacted, or decrease by up to 8.1%. 

International approaches

25․ Many international jurisdictions have been taking action to limit the impact of non-compete clauses. In the United States several states have long taken a strong public policy position against non-compete clauses, including California, North Dakota and Oklahoma where they have been banned. In recent years a growing number of states have also been implementing reforms to restrict the use of non-compete clauses, and in September 2025, the FTC launched a public inquiry into non-compete clauses at the federal level. They have previously estimated that a ban would increase earnings for the average worker by an additional $524 (0.86%) per year. 

26․ France, Germany and Italy have in place a requirement for mandatory compensation to be paid to workers for the period of the non-compete clause, while Luxembourg and Austria have taken a different approach by introducing a ban on non-compete clauses below a salary threshold. A paper examining the reform implemented in Austria in 2006 shows that banning non-competes for lower wage workers increased mobility to better paying jobs.

A similar approach is now being proposed in Australia, where the Federal government announced in March 2025 a ban on non-compete clauses for employees earning less than the high-income threshold, 175,000 Australian dollars (approximately £85,000) a year.

Objectives 

27․ Through reform of non-compete clauses the government would be seeking to advance the following objectives:

• boosting labour market dynamism by making it easier for workers to move jobs or build their own start-up business, with the potential to earn a pay rise, putting more money in people’s pockets and supporting with the cost of living
• reducing barriers to recruitment so that high productivity, innovative businesses, particularly scale-ups at critical stages of growth, can access the talent they need 
• promoting competition and innovation by maximising opportunities for the most talented innovators, experts and entrepreneurs in the UK
• protecting workers so that they do not have to face extended periods of time out of the labour market in their area of expertise, often as long as 6 to 12 months, unable to afford the financial burden of challenging a non-compete clause in the courts – or so that they can afford to move job in the first place

Options for reform 

Statutory limit on the length of non-compete clauses 

28․ There was extensive research and consultation on the use of non-compete clauses in employment contracts under the previous government, which considered several options for reform. YouGov polling conducted under the previous government found that 71% of non-compete clauses are longer than 3 months, and that non-compete clauses have been known to last for up to 24 months. A statutory limit on non-compete clauses could therefore provide some protection for workers by limiting the time they are unable to work in their area of expertise and could promote competition, upwards mobility and wage growth.

29․ On 10 May 2023, the previous government responded to the consultation and announced that it would introduce a statutory limit on the length of non-compete clauses of 3 months. However, no action was taken. View the response to the consultation and accompanying impact assessment.

30․ While the government can see arguments for the proposal to introduce a statutory limit of 3 months on the length of non-compete clauses, there is a risk that it would not meet the objective of protecting workers as it could leave some lower-paid workers facing the possibility of spending up to 3 months unable to work in their area of expertise. 

31․ Evidence from this consultation and subsequent research conducted by the CMA demonstrated that although non-compete clauses are found most prominently in high paying sectors (for example, information and communication services), this is not exclusively the case. Over 10% of workers in teaching and retail have non-compete clauses in their contracts, and over 20% of those working in accommodation or food services.

32․ There is also a risk that a statutory limit could be read as an ‘industry standard’ and it could lead to an assumption by employers and workers that clauses up to the statutory limit would be reasonable and enforceable in all cases. The government would need to make clear that the existing common law principles continue to apply to non-compete clauses shorter than the statutory limit, meaning that a non-compete, as with any clause in restraint of trade, is unenforceable, unless the employer can demonstrate it is reasonable. 

33․ The government could also consider a statutory limit that is either shorter or longer than the 3 months proposed by the previous government. The most common length used by the businesses that responded to a business survey carried out under the previous government was 6 months, followed by 12 months. Therefore, the impact of a 6-month limit would be lower, and a longer statutory limit (for example, 12 months) would have even less impact as non-compete clauses over 12 months are only likely to be assessed by a court as reasonable in exceptional circumstances under existing law.

A shorter limit, for example 1 to 3 months, could be considered. However, it is unlikely that a worker or business would seek to enforce a non-compete of such short duration in the courts. There is a risk therefore that workers would be incentivised to always comply with such a short non-compete.

Statutory limit of on the length of non-compete clauses according to company size

34․ The government could look to apply different statutory limits according to company size. While government would need to conduct further work to identify how limits might vary with company size, one scenario might be that for companies with more than 250 employees, the statutory limit for non-compete clauses could be 3 months while for companies with fewer than 250 employees, the statutory limit could be 6 months.

This approach would aim to promote competition by making it easier for those working for large companies to move to competitors or to start a competing business. It would allow smaller companies to continue to use non-compete clauses for a longer period of up to 6 months provided they are reasonable to protect a legitimate business interest. This could benefit start-ups and scale-ups who would have an advantage over larger companies in being able use longer non-compete clauses to retain talent at a critical stage in their growth journey.

35․ As with any statutory limit on the length, the government would need to make clear that the existing common law principles continue to apply to non-compete clauses shorter than 3 and 6 months. Otherwise, it could shift the starting point from non-compete clauses being unenforceable unless the employer can demonstrate they are reasonable under existing law, to clauses of 3 and 6 months being treated as enforceable.

36․ A limitation with this option is that those working for smaller companies could still be subject to a 6 month non-compete clause – in the example, companies with fewer than 250 employees account for 60% of UK employment.

It could also leave some people working in lower-paid sectors where we know non-compete clauses have been found, for example, early years provision and hair and beauty, subjected to a 6 month non-compete clause. A shorter period, such as 3 months, could help mitigate this but could still place lower-paid workers in financial difficulty after leaving their employer.

37․ The government could also explore alternative company size thresholds, for example, a statutory limit of 3 months for companies with more than 50 employees and a limit of 6 months for companies with 50 or fewer employees. 

Ban on non-compete clauses 

38․ Under this approach, non-compete clauses in employment contracts would be unenforceable. A ban on the use of non-compete clauses in employment contracts would support worker mobility, as is the case in California and some other US jurisdictions. Evidence suggests it would strengthen protections for workers and boost labour market dynamism by making it easier for individuals to move jobs and start new businesses. It would also remove barriers to recruitment and encourage the diffusion of skills and ideas between companies and regions, which can in turn impact competition and innovation.

39․ Workers also might benefit if employers responded to a ban by moving towards positive incentives to retain staff, rather than seeking to restrict their mobility by using non-compete clauses (such as increased pay, bonuses, greater flexibility) or where employers use gardening leave as an alternative to non-compete clauses (where the worker would receive pay).

40․ Some employers might respond to a ban by:

• strengthening their use of other restrictive covenants, confidentiality clauses and intellectual property protections
• removing deferred compensation and benefits from employees who leave and join a competitor firm
• tightening information sharing within the business or organisation

The government would therefore need to ensure that other restrictive covenants, for example non-dealing clauses, are not used in a way that would have a similar effect as a non-compete clause.

Banning non-compete clauses below a salary threshold 

41․ Under this approach, non-compete clauses are only enforceable if the worker earns over a particular salary. Non-compete clauses under the threshold are unenforceable. Although non-compete clauses are found across a variety of incomes, it is the highest earners that most often have non-compete clauses in their contracts. CMA research shows non-compete clauses appear in 20 to 30% of contracts for workers earning under £99,000, rising to over 40% for those earning £100,000 or more. 

42․ There is international precedent for this. For example, Washington State has banned non-compete clauses for those who earn below $123,394.17 for employees (approximately £93,000) and $308,485.43 for independent contractors (approximately £232,500).

The aim is to eliminate non-compete clauses for lower-paid workers who are often not in a financial position to challenge the enforceability of their non-compete clause in the courts, or to spend an extended period out of the labour market. Lower-paid workers are also likely to find it harder to negotiate to remove a non-compete clause before they enter an employment contract.

43․ A ban below a salary threshold would therefore achieve some of the benefits of an outright ban by protecting workers, boosting market dynamism and reducing barriers to recruitment. It would also avoid the main limitation of a statutory limit on length by providing greater protection to lower-paid workers who would not have to risk a period out of work – or the cost of challenging a non-compete clause – in order to change jobs.

44․ There are however drawbacks with introducing a ban under a certain salary threshold including:

• difficulties in calculating pay
• the potential for litigation around what should and should not be included in pay calculations
• the risk of creating certain incentives and cliff edges around pay levels that can lead to unintended behavioural responses

45․ There are also effects to consider with regards to annual uprating, for example it could lead to cases where a worker does not receive a pay rise, and an increase in the threshold means that a previously enforceable non-compete clause becomes unenforceable. Employers might then choose in future to factor non-compete clauses into their decision making around pay to a greater extent, particularly where the workers’ pay was close to the threshold. 

46․ The impact of the policy would vary depending on the level at which the salary threshold is set. A higher salary threshold, for example those earning over the additional rate tax threshold of £125,140, would increase the impact of the policy by bringing a greater number of non-compete clauses within scope of the ban. It could also be argued that workers in pay brackets above that level are more likely to be in a financial position to take legal advice on a non-compete clause or absorb the costs of having to comply with a non-compete clause.

47․ A salary threshold that was set with the main aim of protecting low paid workers could, however, limit to some extent the competition and innovation benefits from restricting non-compete clauses as it would leave higher-paid, higher-skilled workers out of scope of the ban.

Combining a ban below a salary threshold and a statutory limit of 3 months 

48․ The government could also consider a combination of a ban below a salary threshold and a statutory limit of 3 months for those who earn above the threshold. Such an approach would ensure that non-compete clauses are eliminated for lower-paid workers while also ensuring that restrictions on non-compete clauses apply to those at the higher end of the income distribution.

This would mean that restrictions would apply to higher-paid sectors, including tech and AI where we hear that non-compete clauses create frictions and hold back competition and innovation. Additionally, it would mitigate some of the drawbacks with a ban below a salary threshold by softening the cliff edge effects as non-compete clauses above the threshold would be limited to 3 months.

Enforcement 

49․ Enforcement of restrictive covenants, including non-compete clauses, is currently through the county courts or the High Court. Consequently, the losing party will generally bear the winner’s legal costs. It has been argued that this can deter workers from taking any action which may risk legal proceedings, even if the non-compete clause is unlikely to be enforceable if challenged in the courts.

This can leave workers in a position where they are unable to afford to contest the enforceability of their non-compete clause even where there is a high degree of certainty it is unreasonably wide and unenforceable. This means workers can be left with no choice but to comply with what are likely to be unlawful clauses.

50․ There are mechanisms in place to predict or reduce the costs involved in pursuing civil litigation. These mechanisms include:

• Fixed Recoverable Costs (FRC) – these allow parties to know in advance what adverse costs they would be liable for if they lose a case. This can help claimants make an informed decision about whether to pursue litigation 
• Legal Expenses Insurance (LEI) and After the Event (ATE) insurance – these mitigate some of the financial risks associated with litigation. Such insurance would usually cover adverse legal costs, where the losing party in a claim is ordered to pay the legal costs of the other side
• Conditional Fee Agreements (CFA), Damages Based Agreements (DBA) and Litigation Funding Agreements (LFA) – such agreements usually mean that a claimant will not have to pay all or part of their own legal costs unless they win their case

51․ The government is interested in hearing views, and gathering evidence, on whether the threat of high legal costs presents an obstacle to bringing claims on restrictive covenants, including non-compete clauses. If this is the case, we would like to understand whether prospective claimants have access to any of the above mechanisms to reduce the financial risk of bringing a claim, and if not, what the barriers are. 

The government is also interested in suggestions for what the most appropriate response would be if high costs are a barrier, and how any changes might be implemented.

Discussion questions 

The government would welcome your views, and any evidence to support those views, on the following:

1․ Introducing restrictions on non-compete clause

2․ A statutory limit on the length of non-compete clauses 

3․ A statutory limit that differed according to company size 

4․ The length and company size thresholds should be set at, for example:

a) A statutory limit of 3 months for companies with more than 250 employees and a limit of 6 months for companies with 250 or fewer employees

b) A statutory limit of 3 months for companies with more than 50 employees and a limit of 6 months for companies with 50 or fewer employees

c) Other – please explain 

5․ A ban on non-compete clauses in contracts of employment

6․ A ban on non-compete clauses in contracts of employment below a salary threshold

7․ How the government could ensure that a ban below a salary threshold also supports higher-paid innovators, experts and entrepreneurs in the UK

8․ A combination of a ban below a salary threshold and a statutory limit for those who earn above the threshold

9․ Whether restrictions should be limited to non-compete clauses only or should also apply to other restrictive covenants

10․ How the government can ensure that other restrictive covenants, for example non-dealing clauses, are not used in a way that would have a similar effect as a non-compete clause, if restrictions were limited to non-compete clauses only

11․ Whether restrictions on non-compete clauses should be limited to employment contracts or whether the government should consider applying them to wider workplace contracts

12․ Any evidence demonstrating that a ban, or restrictions, on non-compete clauses could impact inward investment or investment in training and upskilling

13․ Any obstacles to bringing claims on restrictive covenants, including non-compete clauses, in the courts

14․ Whether these obstacles are related to concerns about the costs of bringing a claim, and whether there are barriers to prospective claimants accessing mechanisms to reduce or predict costs (for example, FRC, LEI, CFA or DBA)

15․ Any suggestions for what the most appropriate response would be, and how it might be implemented