For how long can employers stop ex-employees joining rivals?

Around the time as the Government was proposing limiting non-competition restrictions in employment contracts to three months, the head of the civil service tried to block Sue Gray from joining Labour as Kier Starmer’s chief of staff for two years. Some commentators referred to this as two years’ “garden leave”, which brought to mind my own experience of litigating how long Formula One teams could hold employees to lengthy fixed-term contracts. What is going on and how long can employers keep employees away from their rivals?

Non-compete clauses are unpaid, time-limited restrictions in employment contracts limiting the employee’s ability to work for (or establish) a competing business after the termination of their employment. For obvious reasons, they are much disliked by employees trying to move jobs and are frequently litigated. Whether they are enforceable at all depends on the facts of each case, but courts rarely allow restrictions for more than 12 months after termination. In May 2023, the government announced it intended to legislate, when parliamentary time allowed, to limit the length of non-compete clauses to three months. 

If this comes into force, one consequence might be that employers extend notice periods, to ensure that key employees with trade secrets cannot pop up in competition within a few weeks of leaving. Of course, this approach has the downside for employers, and the upside for employees, that the period of restriction would be paid. As such, it would be less likely to cause disputes and would probably be limited to the cases in which it is really needed.

Of course, this raises questions about how a long a well-funded employer could hold an employee to paid notice: a year… two years… five years… more?

I grappled with this, while acting for Dan Fallows, Chief Engineer – Aerodynamics for the Red Bull Racing Formula One team, whose resignation to join Aston Martin Racing as Technical Director was announced in June 2021. In public announcements, Red Bull made it clear that it would not release him until July 2023 (i.e. two years later). The case was listed for an expedited trial to take place in January 2022, but the parties reached a settlement a few days beforehand. By agreement, after a short period of gardening leave, Mr Fallows joined Aston Martin on 2 April 2022, a much earlier date than July 2023 as contended for by Red Bull.

We therefore live to fight another day about whether this length of contract is an unenforceable back-door restriction. The longer the restriction the easier to challenge but I would have thought anything over a year was open to scrutiny.

Sue Gray, the former senior civil servant who led the investigation into the Partygate scandal is subject to the rules of ACOBA (the Advisory Committee on Business Appointments). These require that the most senior civil servants will be subject to a minimum waiting period of three months between leaving Civil Service employment and taking up an outside role, but the Committee may impose a waiting period of up to two years. The waiting period “may” be paid, taking into account “all relevant factors” and “departments should seek to redeploy individuals for the duration of the period”. As such, it is a weird public-sector amalgam of an extended notice period (if the individual is redeployed), garden leave (a paid witing period) and a restrictive covenant (an unpaid waiting period).

While the principle that a senior civil servant might be prevented from taking up certain roles elsewhere is uncontroversial, some employers with trade secrets (whether in Formula One or otherwise) might think it a bit rich that the public sector maximum is two years with no clear right for the employee to be paid, while the private-sector unpaid maximum might soon be limited to three months and the paid maximum might be around a year.