The Budget put non-compete clauses on notice - what growing businesses should do now

Most of the Budget coverage last week was about business rates and energy bills. Buried further down the announcement was something that matters more if your plans involve hiring: the Government confirmed it will legislate so that non-compete clauses no longer act as a barrier to hiring for startups and scaling firms.

Nothing has changed yet - but the direction of travel is clear, and there are sensible steps worth taking now. Here is what was announced, what the law says today, and what to check in your contracts.

What the Budget actually said

In the 28 October Budget, the Government confirmed it will legislate to make sure non-compete clauses are no longer a barrier to hiring for "our most promising startups and scaling firms". Alongside that, it will consult shortly on the wider use of restrictive practices, and then set out a detailed position in early 2027, ahead of legislation.

Two things are worth noting about the wording. First, the commitment is aimed at startups and scaling firms - how far any legislation will reach across the wider economy is exactly what the consultation is meant to test. Second, this is a commitment to legislate, not legislation. The detail, including any exceptions and how existing contracts will be treated, does not exist yet.

What the law says today

Until Parliament changes it, the current law applies - and it already limits what a non-compete can do.

English law starts from the position that a clause in restraint of trade - which includes a non-compete - is unenforceable unless the employer can show it is reasonable. To be enforceable, it must protect a legitimate business interest, such as trade secrets, confidential information or established client relationships, and go no wider than reasonably necessary to protect that interest. The burden of proof sits with the employer. A restriction drafted too widely - in how long it lasts, the area it covers or the activities it blocks - risks failing altogether, and courts will not necessarily rewrite an over-broad clause into a reasonable one.

In practice, that means the strength of your position usually depends less on the non-compete itself and more on everything around it: confidentiality clauses, intellectual property terms, notice periods and garden leave provisions.

Not all restrictions are the same

It is worth being precise about what is on the table. A non-compete stops someone working for a competitor (or setting up in competition) for a period after they leave. That is the clause the Budget commitment targets. Other restrictions are different creatures: non-solicitation clauses stop ex-employees approaching your clients or staff, non-dealing clauses stop them doing business with your clients even when the client makes the approach, and confidentiality obligations protect information rather than restricting work at all.

The wider consultation is expected to look at restrictive practices more broadly, but nothing announced so far suggests confidentiality or IP protections are in the firing line. That is another reason to make sure they are doing their share of the work in your contracts.

What to check in your contracts now

Whatever shape the eventual legislation takes, these are worth an hour of attention:

1. Would your restrictions survive even without reform? If a clause is wider than it needs to be, it is vulnerable under today's law, not just tomorrow's. Duration, geography and scope should match what the role actually justifies - a blanket 12-month UK-wide ban for a junior hire is hard to defend.

2. Do confidentiality and IP clauses do the heavy lifting? These are less exposed to the reform debate and often matter more in practice: what information is protected, who owns work created during employment, and what happens to it when someone leaves.

3. Are notice periods and garden leave doing their job? A well-drafted garden leave clause can protect the business through a departure without relying on a non-compete at all.

4. Are directors' service agreements aligned with employment contracts? Senior people often sit under both, and gaps between them tend to surface at the worst moment - usually an exit or a dispute.

5. When you hire, check the other side of the bargain. If a candidate is subject to restrictions from their current employer, knowing that before the offer goes out is far cheaper than finding out in a legal letter afterwards. (One of the reasons reform is on the table is how inconsistently these clauses are used.)

Why this matters for growing businesses

The businesses most likely to feel the change are the ones doing the hiring - taking people from larger competitors, building a senior team for the first time, protecting the client relationships and know-how they have spent years building.

If the reforms land as trailed, relying on a broad non-compete as your main line of defence will stop being an option for exactly the hires that matter most. Businesses that have already moved their protection onto properly drafted confidentiality, IP and notice provisions will barely notice the change. Businesses that haven't will have some hurried redrafting to do.

What happens next

The consultation on restrictive practices is due shortly, with the Government's detailed position promised for early 2027, ahead of legislation. Until then, the current rules apply - but contracts drafted now should be drafted with both in mind.

If you would like your employment contracts, directors' service agreements or consultancy terms reviewed with this in mind, that is exactly the kind of work we do - whether as a one-off review or as part of ongoing support. Get in touch and we will agree the scope and cost with you before any work starts.