Changes to non-compete clauses in employment contracts require ministers to tread carefully

The UK contractor industry's focus may be on upcoming Joint and Several Liability and reform of the Conduct Regulations.

But a consultation that closed yesterday, "Working paper on options for reform of non-compete clauses in employment contracts," also highlights issues contractors will want to watch closely.

What are non-compete clauses?

Non-compete clauses are clauses put into employment contracts to restrict an employee's ability to work for, or establish, a competing business after they have moved on from the role.

And so non-compete clauses (NCCs) have long been the most powerful tool employers have to stop former employees — particularly senior leaders and top sales performers — from immediately joining a rival or launching a competing venture, writes Tania Bowers, global public policy director at the Association of Professional Staffing Companies (APSCo).

Are non-compete clauses (NCCs) enforceable?

By design, NCCs can remove an individual from a portion of the labour market altogether for a defined period. In practice, enforceability hinges on how tightly drafted the clause is — limited business scope, reasonable duration, and clear geographical boundaries are all key.

Usually, employers choose not to enforce the non-compete, relying instead on other clauses in the contract, such as:

What is the government saying about non-compete clauses?

The government estimates that 5million employees in the UK have a non-compete clause in their contracts, with an average length of six months (usually including notice). The government is concerned that NCCs discourage individuals from changing jobs.

And a YouGov survey (run during the last government) found that about half of employees with non-competes believe their employer would enforce the clause. That's the so-called 'deterrent effect.' Today's government is also concerned that NCCs are not restricted to the highest paid, as indicated by a 2024 Competition & Markets Authority study.

What does the DBT non-compete clause consultation propose?

Officials at the Department for Business and Trade (DBT), which published the non-compete clause consultation in November 2025, are exploring options ranging from an outright ban on NCCs to statutory limits based on company size, salary level, or the length of the restriction.

In May 2023, the previous government proposed capping non-compete clauses at three months, but the reform stalled.

The question, in a slightly different form in the shape of this consultation, is now back on the table.

Does this non-compete clause consultation impact contractors and IR35?

Let's now turn to whether contractors should be worried or supportive of potential changes to non-competes in employment contracts.

It's actually worth asking whether the consultation will have any impact on 'contractors' at all. That's because NCCs apply to employment contracts and employees, so, at first glance, it does not affect the contractor population.

However, those contractors operating outside IR35, or under Statements of Work, already navigate a commercial environment where contractual controls are common and can be wide in scope.

Confidentiality obligations, IP and data protection indemnities, non-disclosure agreements, and "non-dealing" provisions with competitors are standard features of business-to-business agreements. Contractors generally accept that a degree of contractual risk is part of operating independently.

Can businesses impose restrictions on their contractors?

As 'end-clients,' organisations have considerably less freedom to restrict the activities of their employees or agency workers than they do independent contractors.

In addition, under the Conduct Regulations (the Conduct of Employment Agencies and Employment Businesses Regulations 2003), temporary workers engaged under contracts for services — or those paid through umbrella employers — cannot be prevented from seeking new work.

Do the 2003 Conduct Regs stop workers from being taken on directly?

However, the Conduct Regulations do permit recruiters to charge temp-to-perm or temp-to-temp transfer fees during the first eight weeks after an assignment-end (or within 14 weeks of the assignment start, if earlier).

This rule, Regulation 10 of the Conduct Regs, creates a commercial deterrent for hirers considering taking workers on directly.

A contractor working through their own limited company (a Personal Service Company), or through other corporate structures such as an umbrella company, can opt out of these regulations.

How enforceable are non-compete clauses in umbrella company employment contracts?

Despite this additional flexibility, umbrella companies rarely enforce employment non-compete clauses against individual contractors, even though they may agree to non-compete, non-dealing, or non-poaching terms as corporate entities when negotiating with recruitment companies.

As mentioned at the outset, though, this is all up for review because the government is consulting on the Conduct Regulations as part of the implementation of the Employment Rights Act.

Which current consultation should contractors prioritise?

If a busy contractor has to differentiate between the many and varied open consultations, then the Conduct Regs review — entitled "Make Work Pay: Modernising the agency work framework" — should be of particular interest.

The Conduct Regs govern how recruitment companies, workforce solutions providers (and their umbrella company supply chain in future) operate.

How do recruiters regard non-compete clauses?

For contractors' recruiters, non-competes are typically an issue in their own employment contracts, rather than in the commercial agreements they deploy with hirers and contractors.

NCCs tend to surface only when permanently placing senior hires.

More commonly, recruitment agencies rely heavily on non-dealing clauses to protect key client and candidate relationships when their employees leave, unless the leaver is senior or has a pivotal role (when they may seek to enforce a non-compete).

How might future changes to non-compete clauses impact recruiters?

Recruitment agencies are keen to retain the right to have a non-compete in their employment terms, as the case law is well established, and when used sparingly and in the right circumstances, NCCs protect their business value.

Agencies are unsure how the restrictions on non-compete clauses proposed in the consultation, such as on the size of the employer's business or the salary of the employee, would work in practice. They also fear the restrictions may have unintended consequences.

What's driving the need to reform non-compete clauses?

The case for reform is largely driven by the need for greater job mobility in the UK economy, particularly in knowledge-heavy specialisms.

A 2019 study, "The Impact of Restricting Labor Mobility on Corporate Investment and Entrepreneurship," 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-stage start-ups as employees.

Key takeaway

The government should recognise that there is already a well-established, thriving, highly productive mobile group of workers, regulated with employment rights and tax protections. And yes, they're called contractors!

As our professional staffing sector knows better than most, job mobility is not restricted to employees, and a flexible, multi-layered workforce is needed to meet the growth and productivity challenges that the UK is facing.