In December 2020 the government set out plans to prohibit the use of non-compete clauses for low-paid workers. This week (5 December), these passed into law. Clare Davis looks at the significant implications for employers.
Employment contracts commonly prevent or restrict employees from working for others or having outside interests. The intention behind such provisions is often to protect the employer’s legitimate business interests, such as confidential information, customer and supplier relationships and the stability of the workforce.
Workers with multiple jobs may know confidential information, such as volume discounts, trading practices and upcoming promotions. They might seek to use such information to the advantage of one employer and the detriment of another. They may be aware of one employer’s customers and actively solicit those customers for the benefit of the other employer. Similarly, an employee can talk up working practices at one employer, encouraging workers to leave their current employment. Understandably, employers would want to prevent such practices.
The measure may increase the availability of applicants for lower paid vacancies; for example, in the retail and hospitality sectors”
However, from 5 December 2022, under the exclusivity terms for workers legislation, employers can no longer enforce non-compete clauses against low-income workers. This effectively extends the ban on exclusivity, which has applied to workers on zero hours contracts since 2015.
The new regulations make any contractual term unenforceable if it prohibits a low-income worker from working for or providing services to another employer or only permits it with the current employer’s consent. This means the employer can no longer seek an injunction or damages for breach of contract if the worker is in breach. Low-income workers are those whose guaranteed weekly income is on or below the Lower Earnings Limit (LEL), currently £123 per week. The government sets the LEL annually and it equates to almost 13 working hours per week for someone earning the National Living Wage.
In addition, the regulations protect workers who are dismissed or subjected to a detriment for breaching an exclusivity clause. Employees are protected from unfair dismissal and workers against any detrimental action. Importantly, the unfair dismissal protection applies immediately with no qualifying period of service and it will be automatically unfair for employees to be dismissed for a reason relating to a breach of an exclusivity term. If a tribunal finds a worker has suffered a detriment, the remedies available include a declaration and compensation that is just and equitable up to an amount equal to the unfair dismissal basic and compensatory awards.
The government estimates the exclusivity ban extension will benefit around 1.5 million workers, who were disproportionately affected by the pandemic, giving them more flexibility over when and where they work, including the ability to plan jobs around childcare or education. With the current cost of living crisis, the extension may be well-timed for the lowest paid, enabling them to supplement their income without seeking permission or being in breach of contract. The measure may increase the availability of applicants for lower paid vacancies; for example, in the retail and hospitality sectors.
Employers should review their contracts for lower paid workers, removing exclusivity clauses altogether for those earning at or below the LEL. However, they may still keep them in contracts for those who earn more than the LEL. To ensure employers comply with working time limits, they can still require all employees and workers to notify them if they do any work for another employer and, if so, the number of hours.
If employers are concerned about lower paid staff members working for competitors, when they have access to sensitive commercial information and customer relationships and if they might destabilise the workforce, they should ensure they include restrictive covenants in their contracts to protect their legitimate business. These include robust confidentiality provisions, as well as restrictions preventing solicitation and dealing with customers, interference with suppliers and poaching of staff, which may apply both during employment or engagement, and for a period afterwards.