“Non-competes” or clauses that restrict employees from engaging in a competing business for a period of time after their employment ends are an important tool in the arsenal of employers seeking to protect their business interests, and in particular their trade secrets and other confidential information. Increasingly, however, non-competes seem to be coming under fire with many jurisdictions introducing tighter limitations on their use or even considering banning them entirely.
As has been previously covered in Employment Law Worldview, the US Federal Trade Commission (FTC) placed an outright ban on non-competes in 2024. While the Federal ban was later overturned, several US states (California, North Dakota, Oklahoma and Minnesota) already have near-total bans and (as detailed in the table below) several others are currently legislating against the use of non-competes for defined categories of employee, including those on lower salaries and medical professionals.
Outside the US, non-competes are also an area of increased focus with several jurisdictions currently consulting on reform, proposing draft legislation or giving judicial scrutiny to this topic.
So, what’s driving this?
The Case for Reform
The case for reform as laid out by the various governments boils down to a concern that non-compete clauses are being over-used in the contracts of workers who do not in fact have access to trade secrets and other confidential or otherwise sensitive or protectable information, particularly those of lower-paid workers and in certain industry sectors. As a result, the argument runs, employee mobility is limited, legitimate competition is stifled and productivity at both a corporate and national level suffers.
The mere presence of a non-compete in an employment contract can create a deterrent effect for individuals, who may not even have been aware of the clause at the time they signed up to it. Workers (particularly lower earners) may not have the appetite or the resources to challenge an employer seeking to enforce a non-compete.
As well as the potential this creates for individual injustice, governments have voiced concerns about how this may impact economies. Workers need relative flexibility to move around within the labour market to fuel economic growth and avoid wage stagnation. Flexibility is also essential to enable new players (particularly in knowledge-intensive sectors to emerge and flourish).
The use of non-compete clauses also entails an inherent tension between the rights of individuals to work and move around the labour market freely, and the rights of employers to protect their legitimate interests. Even though international support for reasonable post-termination restrictions on the solicitation of clients or colleagues remains widespread, non-competition clauses take things a step further just by their blanket impact on the employee. In times of greater geopolitical uncertainty workers may be more included to opt for the stability and certainty of their current role rather than risking a move – better the devil you know, etc. Removing potential barriers for would-be job hoppers then becomes of greater importance to governments looking to create labour market flexibility. Furthermore, those who are focussed on driving growth through knowledge-intensive sectors are also likely to place increased weight on economic freedom and industry mobility, even where this may be at the expense of individual employers’ legitimate interests in restricting former workers.
There are also arguments against such reform, in particular that employers may be less willing to invest in circumstances where that investment is vulnerable to being taken elsewhere by a key employee. Start-ups may have particular difficulties in retaining staff key to their very existence.
Keeping Abreast of Developments
Here is a roundup of key recent and pending reforms around the globe:
| UK | A government consultation seeking input on potential reform to non-competes is due to close this week (18 February). The working paper puts forward various options for reform, including statutory time limits and salary thresholds, as well as a total ban. Interestingly, while the government notes in its working paper that other jurisdictions such as France, Germany and Italy have in place a requirement for mandatory compensation to be paid to workers for non-competes, this is not now one of the potential reforms on the table. |
| US | With an outright regulatory ban on non-competes now off the agenda, the FTC is now pivoting toward enforcement via targeted litigation and investigations. Across the US, there are several recent or pending reforms at State level that place tighter restrictions on the use of non-competes by employers. New York’s Senate Bill S4641A, if signed into law, would prohibit “non-compete agreements” in fresh employment agreements for any individual who qualifies as either a “covered individual” (i.e. lower earners) or “health-related professional”. Texas and Virgina are also introducing reforms designed to enhance labour market flexibility, particularly for senior physicians and lower earners. Kansas and Florida appear to be bucking the trend with both States moving in a more pro-employer direction. |
| Singapore | The tripartite partners (i.e. the Ministry of Manpower, National Trades Union Congress and Singapore National Employers Federation)are working on guidelines on the use of restrictive covenants. The Ministry of Manpower has indicated that the guidelines will “mak[e] sure that unreasonable employment contract clauses do not become a norm”. Details of the guidelines (which will not be legally binding but will be persuasive in the Singapore Courts) are still awaited, but it is widely anticipated that the guidelines will further narrow down the enforceability of non-competes even for executive-level employees |
| Netherlands | Reform in the Netherlands began in 2015 when tight restrictions were introduced on the use of non-compete clauses in fixed term contracts. More recently, a Bill issued in early 2024 sets out broader reform to non-compete clauses by introducing additional requirements for their use in permanent employment contracts. The Bill is yet to receive final approval but is currently expected to come into force in late 2026/early 2027. The Bill includes requirements for the employer to (i) include a detailed and tailored written justification as to the need, scope and duration (which will be capped at 12 months) of the clause, and to invoke the clause in a timely manner; and (iii) to pay mandatory compensation covering at least half the salary for each month that the employer invokes the clause. The possibility of outlawing non-competes for lower earners (those at or below 1.5 x the median income) is still being explored. The Bill provides transitional law. Non-competition clauses agreed before the Act enters into force will remain legally valid, but will be subject to a 12 month maximum duration and compensation will have to be paid when the clause is invoked. |
| Australia | The federal government has indicated its plans to ban non-compete clauses for those workers earning under the high-income threshold (currently AU$183,100 but adjusted annually on 1 July each year). The government has now completed consultation on the proposal, and any new legislative changes are anticipated to come into effect from 2027. |
| China | On 4 September 2025, the Ministry of Human Resources and Social Security (MoHRSS) issued practical guidance for employers on legally enforcing non-compete agreements. The guide clearly stipulates the preconditions for implementing non-compete restrictions, requiring employers to first confirm the content and scope of trade secrets, as well as prohibiting the inclusion of such clauses in the contracts of workers who have no access to trade secrets. It details permissible scope, duration and geography of non-compete restrictions, and provides explicit guidance on payment of financial compensation during the non-compete period, including calculation methods and payment timelines. It also clarifies dispute resolution channels, guiding employers to implement non-compete systems in a compliant manner, while protecting workers’ rights to employment and career development. |
Key Takeaways for Employers
- Review your overall strategy for protecting your business. What safeguards (other than non-compete clauses) are in place to protect proprietary information and defend against unfair competition?
- Consider how you would fill in the gaps if a blanket ban on non-competes was introduced (or indeed if a specific non-compete clause were to be ruled unenforceable). Options could include:
- Bolstering confidentiality agreements
- Updating employment agreements to ensure the protection available under trade secret protection laws is being fully leveraged
- Ensuring bonus and incentive plans are structured to deter unfair competition
- Educating line managers to ensure they are identifying specific risks around departing employees, and taking appropriate steps to ensure proprietary information is retained and key relationships are transitionedChecking up on (or introducing) your non-solicitation non-dealing and non-poaching provisions to ensure that they are proportionate and enforceable
- For executive staff, making sure you have notice obligations and garden leave wording enough to buy you a breathing space before the departing employee can begin elsewhere.
- Avoid over-use of non-competes, particularly in lower tiers of the workforce.
- Identifying key senior employees where non-competes are really needed. Ensure that such clauses are regularly reviewed and updated to (as a minimum on any promotion) reflect evolving responsibilities and regulatory developments in order to maximise prospects of enforceability.
More detailed coverage and ongoing updates on the above legislative developments is provided on Global Edge. Existing Global Edge subscribers can access Horizon updates here. New users can request a demonstration or access for a free of charge trial period by contacting global.edge@squirepb.com.
