Covenant reforms are on the cards thanks to the government’s desire to reduce regulation and enhance employee rights. Their policy paper “Smarter Regulation to grow the economy” was published in May 2023 and outlines employment reforms; part of which includes a limitation on non-compete clauses. If approved, it is destined to come into force in 2024.
Two years ago, the government started their consultation on reforming non-compete restrictive covenants as part of wider employment law changes. Most of us in the insurance industry, and in particular client facing employees, are bound by a wide-ranging 12-month covenant which usually includes a clause preventing them from competing with their employer for 12 months – either generally or for specific clients.
While the reforms will focus purely on the ‘non-compete’ restrictions, the changes could be great news for employees – but not so good for employers.
Almost daily I find myself talking to individuals who are trying to make sense of their covenants and asking the usual questions of; “What do they mean?”, “Are they enforceable?” and “What can I do to avoid legal action?”. All are critical questions that need to be considered when it comes to planning for a step into self-employment.
I was curious about the opinions of the wider insurance industry on the subject so posed a question on LinkedIn: “Based on your experience, how long do YOU think restrictive covenants should last – and why?”
There were clearly some very strong views and probably, as expected, the results showed a vast difference of opinions when segmenting the results by those in front line positions to those in management.
The biggest response group were those in a non-management position: they made up 53% of the 173 responses.
92% of Senior Management and 71% of Middle Management said they preferred a 6-12 month covenant term while 74% of those in client facing roles opted for 6 months or less.
The comments offered plenty of debate. One reply suggested that “completely getting rid of covenants could incentivise employers to work harder on keeping their employees happy”. With many businesses struggling with recruitment this comment clearly has some merit.
There is also a sense that seniority should dictate covenants on different levels. Another comment proposed the view that we should be less standardised in our approach, saying that it “totally depends on the role, the individual and their potential impact on the business”.
But where do you draw the line? What’s fair and reasonable will no doubt continue to be debated. For now, we will wait and see what happens with the legislative changes. The next election could potentially delay the passing of the bill, but it looks almost certain to become law.
The insurance industry is a people business and we pride ourselves on the quality of service we provide. “In most cases, the client buys into the individual… and if the client wants to move to a new broker, they will move!”.
Whatever the conclusion of the talks, I feel this will create challenges and opportunities for the insurance industry. Businesses will need to up their game in respect of remuneration, day to day support, and retention of staff or staff – in particular those who are client facing will become more transient.