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The potential reform of non-compete clauses and how IP rights can help to fill the gap

The potential reform of non-compete clauses and how IP rights can help to fill the gap

1st April 2021 - Published by Kuits Intellectual Property Team

To support the UK’s economic recovery from the impacts of COVID-19, the Government is exploring avenues to boost innovation through the diffusion of ideas, creating the conditions for new jobs and increasing competition. Non-compete clauses used commonly by employers in employment contracts can act as a barrier by preventing individuals from working for a competing business in certain ways. Most often, they will be used to protect the former employer’s confidential information or customer relations for a specific period of time.

At present, if narrowly defined and limited to the period of time which is required to protect the legitimate business interest, these clauses are generally enforceable in the UK. The consultation that closed on 26 February 2021 suggests, however, that the Government is currently considering restricting the use of non-compete clauses in order to aid post-lockdown economic recovery and growth.

Mandatory compensation

One of the two possible reform measures being looked at is the introduction of a compulsory compensation. Under this proposal, non-compete clauses would be enforceable only where the employer provided compensation for the post-employment period in which the individual would be prevented from working for a competitor or starting their own business.

It is believed that the compensation would disincentive employers from using such clauses as standard in contracts of employment, and therefore reduce their prevalence and use.

Ban on non-compete clauses

The alternative, and more radical proposal, involves making non-compete clauses unenforceable altogether. It is hoped that this could have a positive effect on innovation and competition by making it easier for individuals to start a new business. This would also contribute to the diffusion of skills and ideas between companies and wider regions, which could in turn positively impact an economic growth.

Such an approach has been recently taken in California, which is home to some of the world’s most innovative organisations and tech clusters, where use of non-compete clauses is now prohibited.

How can Intellectual Property rights help?

Whilst many businesses will be aware of what Intellectual Property rights are and how they are enforceable, given the above proposals, employers will need to review the options for protections that are available to them. This may mean placing greater weight on Intellectual Property clauses in employment contracts, or dealing with the ownership of Intellectual Property rights throughout the duration of an employee’s employment with a greater degree of clarity.

Various Intellectual Property rights are capable of filling the gap likely to be caused by the Government’s departure from the current and longstanding legal framework on non-compete clauses. Examples of the Intellectual Property rights which could be enforced are:

  • Copyright: if documents are created within the course of employment by the employee, the default position is that the employer will have ownership of copyright in these works;
  • Database rights: subject to the works qualifying for these rights, as there are some post-Brexit changes to consider, once again these rights will vest in the employer;
  • Trade marks and passing off: in the event that the employer holds registered trade marks which are used in the course of business activities, employees could be restricted from using materials which bear these marks and should they imitate the employer’s business get-up at the end of their employment, their activities may give rise to an action in passing-off; and
  • Confidential information: if information is of a confidential nature and has been provided to employees in that context, employees will be restricted from making use of and disclosing this information for a limited period of time.

It is a good idea for employers to start thinking about future-proofing by revisiting their contracts and thinking about the ways in which protection of their business interest could be reinforced.

Get in touch with an Intellectual Property Specialist in Manchester

If you wish to discuss how Intellectual Property rights can further protect your business in respect of non-compete clauses, please contact Senior Associate Humna Nadim on 0161 838 7816 or email humnanadim@kuits.com.

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