Non-compete reform: when equity becomes the restraint

By Nigel Watson

20 Oct 2026 6 min read

A senior executive at a private equity-backed business wants to join a competitor. Their employment contract contains a six-month non-compete, but the more significant deterrent may be elsewhere. Under their management incentive plan (MIP), joining a competitor could cost them £1 million. The employment contract restricts what they can do. The equity documents determine what doing it might cost.

Businesses have legitimate reasons to protect themselves when important people leave. Under English law, an employee’s non-compete must protect a legitimate business interest and go no further than reasonably necessary. A founder selling a business may accept wider restrictions because the buyer has paid for goodwill. A senior executive can be an employee, director and shareholder, with restrictions arising from several different commercial bargains. But putting a restriction in shareholder documents does not, by itself, turn an employment restraint into a sale-of-business covenant. The substance of the bargain matters.

On 9 October 2026, the Prime Minister announced plans to tackle non-competes obstructing recruitment by start-ups and scale-ups. The speech also recognised obstacles to job mobility in the wider economy. At the time of writing, the precise legislative approach remains uncertain.

The Government’s working paper of 26 November 2025 has already identified the possibility that employers might respond to a ban on non-competes by withdrawing deferred remuneration and benefits from employees joining competitors. It also sought views on extending reform beyond employment contracts to “wider workplace contracts”.

For employee equity, that deserves particular attention. Arguably the question is not simply whether an executive can move, but which businesses can afford to recruit them.

When equity becomes the restraint

Consider an executive holding vested management shares valued at £2 million for the purposes of the departure arrangements. Under the MIP, the executive transfers their shares on departure. The agreed consideration is £2 million, payable after six months, but £1 million is conditional on the executive not joining a competitor during that period.

If they retire or join an unrelated business, they receive £2 million. If they join a competitor, they receive £1 million. Their past contribution is identical, but the additional financial consequence arises from their next employment.

Let's assume, for this hypothetical example, that future legislation renders any non-compete in their employment contract unenforceable but does not itself invalidate the equity provision. The executive can join the competitor without risk of breaching the now toothless non-complete, yet doing so still carries a £1 million financial consequence under the MIP. Whether the equity provision in the MIP is enforceable under existing law remains a separate question. Even a provision open to challenge could deter movement between employers if the executive must pursue payment to establish their entitlement.

The amounts may be unusually large, but the issue extends beyond private equity. Deferred bonuses, restricted share awards and other arrangements can impose similar consequences on employees who move to competitors.

Financial restraints and the law

In Wyatt v Kreglinger and Fernau [1933] 1 KB 793, the Court of Appeal considered a pension conditional on the former employee not competing. The case supports the principle that making a financial benefit conditional on not competing can engage restraint-of-trade principles, even without a direct prohibition.

More recently, in Geeks Ltd v Watts [2026] EWCA Civ 889*, the Court of Appeal held that the training-cost repayment provisions before it engaged the doctrine and were unreasonable. Financial disincentives are not exempt from scrutiny merely because they do not expressly prohibit departure or subsequent employment.

That does not make every continued-service condition a restraint. In Tullett Prebon plc v BGC Brokers LP [2010] EWHC 484 (QB), repayment provisions concerning re-signing and retention payments conditional on completing minimum service periods were held not to constitute restraints of trade. That is an example, not a safe harbour for all service-linked repayment provisions.

Nor does the case law establish that management equity is exempt. In Nosworthy v Instinctif Partners Ltd (UKEAT/0100/18/RN), voluntary resignation triggered compulsory share transfers and forfeiture of loan notes. Challenges based on unconscionability and penalties failed, but the Employment Appeal Tribunal declined to entertain a restraint-of-trade argument raised for the first time on appeal. That issue remained undecided.

For the competition-linked holdback in our example, there is a strong basis for arguing that restraint-of-trade principles are engaged. The central issue would then be reasonableness, assessed against the legitimate interests protected and the circumstances existing when the arrangement was agreed. If the condition were unenforceable, a further question would be what consideration remained recoverable under the documents.

The bargain behind management equity

The strongest counterargument is that management equity is a conditional bargain, not an unconditional entitlement to value already earned.

Management shareholders may hold rolled-over equity, sweet equity and additional service-conditioned awards. These categories can overlap, and “vested” does not necessarily mean free of continuing conditions. But describing equity as conditional does not answer the question: which conditions apply, and what are they intended to protect?

Losing an unvested incentive award because someone leaves before completing the relevant service period is different from losing part of the consideration for transferred shares specifically because they join a competitor. Neither outcome is automatically lawful or unlawful, but they require different justification.

Our example deliberately concerns vested shares transferred on departure, with part of the consideration conditional specifically on subsequent competition. The executive need not provide further service to receive that payment; they must refrain from competing. That is the condition requiring scrutiny.

A genuine commercial shareholder bargain may justify greater latitude than an employment restriction, but shareholder status is context, not an exemption from scrutiny. The analysis still needs to identify the interest protected, the conduct triggering the consequence and whether its scope, duration and financial effect are proportionate.

Who can afford to recruit?

If non-competes become weaker, some employers may respond through greater deferral or more demanding leaver provisions. Prospective recruits may discount conditional equity or seek compensation for accepting those terms, while incoming employers can offer replacement awards.

That creates a tension with the Government’s objectives. A well-capitalised competitor may be better placed to compensate an executive for a £1 million forfeiture than a smaller business with limited funding. Replacement equity can help, but a contingent, illiquid award is not necessarily equivalent to £1 million of contractual cash consideration.

Financial restraints can therefore influence which businesses can afford to recruit experienced executives, potentially favouring those with greater capacity to fund replacement compensation.

For companies and sponsors, the practical response is to examine employment restrictions and incentive arrangements together. I would start by comparing two scenarios for each senior participant: leaving for a non-competing role and leaving for a competing role. On consistent valuation dates and payment assumptions, the difference isolates the economic consequence attached specifically to competition.

A third scenario, remaining employed, helps identify what the executive gives up by leaving, but the comparison is not like-for-like: staying may involve further service and continued investment risk, while any future growth in value remains uncertain.

Amounts forfeited should be distinguished from payments merely deferred and overlapping consequences should not be counted twice. Projected proceeds at a future exit must also be separated from contractual entitlements at departure, rather than treating uncertain future growth as an immediate loss.

These comparisons do not determine enforceability. But they identify which provisions attach a financial consequence to competition, how substantial that consequence is and where legal scrutiny should focus.

Legislative reform may change whether an executive can, as a matter of contract, be stopped from moving to a competitor. The equity documents may still determine whether the executive can afford to move and who can afford to hire them.

At Burges Salmon, we advise businesses, investors and senior executives on the design and operation of management incentive arrangements, including leaver provisions, restrictive covenants and the interaction between employment rights and shareholder obligations.

* An application for permission to appeal in Geeks was lodged on 25 August 2026 (UKSC/2026/0126). At the time of writing, the application remains pending.