City leaders weigh employment policy alternatives to non-competes
City businesses are expecting non-compete agreements to become less effective, looking instead to alternatives such as deferred bonus payments or share incentive plans to keep employees on board.
In 2025, the Department for Business and Trade (DBT) launched a consultation to consider restrictions on non-compete clauses in employment contracts. The consultation closed for feedback in February.
David Palmer, a partner at Addleshaw Goddard, told Morning Wire: “We don’t quite know what they will do…. I wouldn’t imagine that within two years’ time, we’ll still have them in the same way, shape, or form. It looks like there’s going to be change, and that might involve getting rid of them in some way, changing them, or making them ineffective.”
He said that businesses are now engaging in “blue sky thinking” in the pursuit of staff retention.
One plan for City firms is to delay and restructure staff bonuses. He said: “Why not just delay making bonus payments so that the employees, therefore, are incentivised to remain employed a bit longer… and therefore that gets you that extra service, bit of extra protection.”
Another point leaders are asking lawyers to look at is gardening leave provisions in employment contracts. “The best way to protect your business is to put individuals on garden leave… and that gives you the best protection that you can get from competition because they owe you a lot more duties when they’re still your employee,” he added.
Some industries have already put in place share incentives, locking away the date for when an employee can access company shares to keep staff locked in for an extended period of time.
Businesses rush to restructure ahead of cap removal
Firms are having to grapple with the biggest overhaul to workers’ rights in a generation, with more stages of the Employment Rights Act set to come into force next January.
The two-year qualifying service period needed before an employee can lodge an unfair dismissal claim has been reduced to just six months. Businesses have been rejigging employment contracts in anticipation of this change.
Palmer said: “Most of the conversations I’ve been having over the last six months have been about people taking a six‑month probation period and shortening it.
“What lots of employers are doing… is to look at probation periods, with the idea being that if someone’s not right for your organisation, that you exit them before they get to six months’ service.”
As a result, the lawyer added, HR departments will focus more on a new employee’s performance in the first few months of their role.
Another move in January, under the new Employment Rights Act, will see the compensation cap for unfair dismissal of £123,543 or one year’s salary removed entirely, making it more expensive to lay people off the following year.
In July, lawyers told Morning Wire that senior executive exits from top businesses had surged as firms quietly cleared out highly-paid staff before the new cost changes came into force. “We had clients who were thinking about making redundancies the following year or reorganisations [but] it made no sense to wait to do that until the following year when the cap came off,” Palmer explained, adding clients were far better to do it that year because the cap was still in place.