Restrictive covenants and team moves·Contracts and incentive plans
Non-compete reform: the restraint in the plan rules
The Government’s promised legislation is framed around non-compete clauses in employment contracts, but for senior employees the more effective restraint may be the forfeiture of deferred pay on joining a competitor, which the common law already treats as a restraint of trade.
The Budget on 28 October confirmed that the Government will legislate so that “non-compete clauses in employment contracts do not prevent startups and scaling firms from hiring, or workers in the everyday economy from moving jobs” (Budget 2026, para 6.93). A consultation on “the wider use of restrictive practices” is to follow shortly, and a detailed position in early 2027, before legislation (paras 4.110–4.111).
For senior employees, the covenant in the service agreement may not be the restraint that matters most. Deferred bonus and long-term incentive awards commonly lapse, or survive for good leavers only if they do not join a competitor. Whether the reform reaches those conditions will decide how far it touches executive pay.
What the common law already says
A financial incentive not to compete has long been treated as a restraint of trade. In Marshall v NM Financial Management Ltd [1995] 1 WLR 1461, 1465, Jonathan Sumption QC held that “there is no relevant difference between a contract that a person will not carry on a particular trade and a contract that if he does not do so he will receive some benefit to which he would not otherwise be entitled”. The appeal, on severance only, was dismissed ([1997] 1 WLR 1527).
Sadler v Imperial Life Assurance Co of Canada Ltd [1988] IRLR 388 is closer to executive pay. The claimant was an employee whose post-termination commission would cease on taking up competing work. The employer argued that the commission was a perquisite, to be accepted on its terms or rejected. Mr P J Crawford QC disagreed: the entitlement was “not a mere perquisite: it is part of the consideration for his employment and an inducement to continue in the defendants’ service” (para 15). The condition was severed and the commission remained payable. The parties agreed that it could not be justified if it was a restraint (para 9), so the case does not show that such conditions always fail.
An ordinary condition of continued employment is different. In Peninsula Business Services Ltd v Sweeney [2004] IRLR 49 the EAT held that a rule denying commission to anyone no longer employed when it fell due was not an unlawful restraint, because the employee “was at liberty, on leaving Peninsula, to work for whomever he liked” (para 41).
That distinction is not exhaustive. In Geeks Ltd v Watts [2026] EWCA Civ 889 the Court of Appeal accepted Sweeney (para 61) but held that the obligation to repay training costs on leaving engaged the doctrine, and was unenforceable: “financial disincentives are not exempt as a class from scrutiny” (para 49).
What the Government has been told
The issue is already on the Government’s radar. Its working paper of November 2025 listed, among the ways employers might respond to a ban, “removing deferred compensation and benefits from employees who leave and join a competitor firm” (working paper, para 40). It also asked whether restrictions should extend beyond employment contracts to “wider workplace contracts” (question 11).
The previous Government’s 2023 response to the 2020–21 consultation recorded that 38% of respondents foresaw unintended consequences from limiting reform to non-compete clauses. Those listed included “greater use of indirect restraints such as shareholders’ agreements, options schemes and long-term incentive plans” (government response, p 10). It nonetheless proposed to apply its three-month limit to non-compete clauses “in contracts of employment and limb(b) worker contracts only” (p 4).
Why the definition matters
Plan rules usually sit outside the service agreement, and an award may be made under a separate agreement with a parent company that is not the employer (Petter v EMC Europe Ltd [2015] EWCA Civ 828, para 16). That may not be decisive: for jurisdictional purposes, separate bonus agreements have been held to be part of the contracts of employment (Samengo-Turner v J & H Marsh & McLennan (Services) Ltd [2007] EWCA Civ 723, para 31). The same question arises under the fire and rehire protections. If the legislation does not reach plan conditions, forfeiture on joining a competitor will be subject to the common law reasonableness test, but to no statutory limit.
The common law already provides a useful starting point for the statutory definition. Whether a provision operates in restraint of trade depends on its substance and effect, not its form (Sadler, paras 10, 15; Geeks, para 49). A statutory definition could cover any term, wherever contained, that makes the vesting, payment or retention of remuneration conditional on not competing after employment ends. That would reach plan conditions without catching conditions of continued employment of the Sweeney kind, and leave other financial disincentives to the common law.
The Budget announcement does not itself change the law, and whether legislation will reach existing awards is not known. For an award lapsed today, the questions remain whether the condition is a restraint, whether it is reasonable and, if not, whether it can be severed from the rest of the award.
A reform confined to non-compete clauses in employment contracts risks leaving the restraint in the plan rules untouched, and encouraging greater reliance on it.