Non-compete reform and business sales: Martin De Ridder explains

The Budget on 28 October 2026 confirmed that the government will legislate to limit non-compete clauses in employment contracts. The detail is still to come, but employers who rely on restrictive covenants, and anyone buying or selling a business, should be watching closely.

In a Budget Special of Legally Sound, the Ansons Law podcast, Martin De Ridder, Managing Director of Ansons Law, was joined by Neil Jones, Director and Joint Head of our Corporate and Commercial team, to look at where the reforms are heading and how they could affect deal structures. Martin advises employers and employees on restrictive covenants, and Neil advises on the sale and purchase of owner-managed businesses.

Key takeaways

• The government will legislate so that non-compete clauses are no longer a barrier to hiring, for start-ups and scale-ups and for workers across the economy.
• It will consult shortly on the wider use of restrictive practices and set out its detailed position in early 2027.
• Options set out in a November 2025 working paper include a cap on duration, a full ban and a ban below a salary threshold.
• Existing non-competes remain subject to the current law until any change takes effect.
• If reform reaches business sale agreements, expect more use of earn-outs and deferred consideration.

What has been announced?

On 9 October 2026, the Prime Minister said the government would legislate to make sure non-compete clauses are no longer a barrier to hiring. The Budget confirmed that commitment. The reforms are aimed at helping start-ups and scale-ups to hire and at making sure workers in the everyday economy are not prevented from moving jobs, and they will apply across the whole economy.

The government will also consult shortly on the wider use of restrictive practices, and says it will set out a detailed position in early 2027 before bringing forward legislation. It has not said exactly which practices the consultation will cover, but commentators expect it to include long notice periods and garden leave.

This follows a working paper published with the November 2025 Budget, which closed on 18 February 2026. It sought views on:

• a statutory limit on the length of non-compete clauses, with options from one to 12 months;
• a complete ban on non-competes in employment contracts;
• a ban below a salary threshold; and
• a ban below a salary threshold combined with a time limit above it.

It also asked whether any reform should extend beyond non-competes to other restrictive covenants, such as non-dealing clauses. Neil expects the detail to take time:

"Again detail to be thrashed out through and following the consultation."

What is the current law?

Restrictive covenants in employment contracts are enforceable only if they protect a legitimate business interest, such as client connections or confidential information, and go no further than reasonably necessary to protect it. Many non-competes fail that test, but they can still deter employees from moving jobs, which is the government's concern. We looked at a related restraint of trade question in our article on training cost clawbacks. Martin explains why employees are in a weaker position:

"An employee a lot of the time just has to sign the contract that's put in front of them unfortunately and hasn't got the negotiating power."

Until new legislation is in force, that position does not change. It is not yet known whether the new rules will apply to existing contracts or only to new ones.

Employers often use other tools alongside a non-compete, such as long notice periods and garden leave, which keep an employee out of the market while they are still employed. The government has said it will consult on the wider use of restrictive practices, so employers should not assume that moving protection into notice periods will be a safe alternative.

Will the reforms apply to business sales?

That is the open question. The announcements so far focus on employment contracts. Covenants given by a seller on the sale of a business have long been treated more leniently by the courts, because the buyer is paying for goodwill and the parties usually negotiate on a more equal footing. Neil is watching whether the reforms will cross over:

"From my own perspective it will be interesting to see whether that is linked just to employment law perspective or whether there might be an extension into M&A work."

Owner-managers who stay on after a sale usually sign an employment contract too, and any covenants in it would be within the reforms even if those in the sale agreement are not.

The working paper noted that in some countries, including France, Germany and Italy, an employer must pay the employee while a non-compete runs. That is not part of any confirmed UK proposal, but Neil thinks it would be a fair approach:

"They might say that if you want that non-compete, and this would be fair, you've then got to pay for it."

How could deal structures change?

If buyers can no longer rely on a seller's non-compete to protect the goodwill they are paying for, they will look for other ways to protect value. Neil expects to see more of the structures already becoming common:

"If it does extend to M&A then you could potentially find it having an effect on the structure of deals."

Those include:

• earn-outs, where part of the price depends on the business's performance after completion;
• deferred consideration, paid in instalments; and
• retentions or escrow, which hold back part of the price for a period after completion.

Neil expects these to become more common:

"I think we can probably see those type of deals coming more to the forefront than they are at the minute and they are starting to be more popular."

What should employers do now?

1. Review the restrictive covenants in your employment contracts, especially for senior and client-facing staff.
2. Check whether each covenant protects a real business interest and is no wider than it needs to be.
3. Consider whether non-solicitation and confidentiality clauses would give you enough protection without a non-compete.
4. Watch for the consultation and the timetable for legislation.

What should buyers and sellers do now?

1. Expect buyers to scrutinise the strength of any seller covenants in deals completing over the next year.
2. Think about how much of the price should be paid up front and how much deferred.
3. Take advice early on how the covenants and price mechanics fit together.

Martin De Ridder and Neil Jones discuss non-compete reform, BADR, Founders' Relief and the wider Budget in the Budget Special of Legally Sound, the Ansons Law podcast. Watch the episode.

How we can help

Our Corporate and Commercial team, led by Neil Jones and Jamie Gill, advises buyers and sellers on protecting the value of a business on a sale, and our Employment team advises employers on restrictive covenants in employment contracts. We can review your contracts now so you are ready for the changes.

If you need advice on restrictive covenants or a business sale, please fill out the contact form on this page, email info@ansons.law or call 01543 267988 and a member of our Corporate and Commercial or Employment team will get back to you.

The law in this area is changing, and the detail of the reforms is not yet known. Take individual professional advice before acting.

This article is for general information only and does not constitute legal advice. Specific legal issues always require the advice of a qualified legal professional.