The Prime Minister revealed last Friday that the government intends to curb non-compete clauses in employment contracts. This announcement was made by Andy Burnham during his speech at the Innovation Nation Summit, where he stated that legislation would be introduced to address both lengthy notice periods and non-compete clauses, which he believes have "gone too far." The aim is to enhance flexibility in the jobs market for highly skilled workers.
Non-compete clauses are prevalent in sectors such as technology, finance, and insurance, where businesses rely on specialist skills and seek to prevent former staff from using intellectual property at rival firms. While some employees may welcome the government's initiative, as such restrictions can impede career progression, parts of the City have expressed concerns about potential staff and intellectual property loss.
Mark Callaghan, a senior associate at law firm Littler, explained that many City employers view non-compete provisions as crucial for protecting against key individuals quickly moving to competitors with valuable relationships, knowledge, and business strategy. David Palmer, a partner at Addleshaw Goddard, noted that existing case law already limits the use of unreasonable non-compete clauses.
The government's move follows a consultation launched last year by the Department for Business and Trade (DBT) on restrictions to non-compete clauses, which concluded in February. This consultation prompted some lawyers to advise clients on alternative strategies. Palmer suggested that companies currently using non-competes as standard may now increase their reliance on gardening leave, which he believes has a similar effect.
Gardening leave involves an employee remaining on the payroll during their notice period after resigning or being dismissed, but being instructed to stay away from the workplace and not perform duties. Palmer also indicated that the government might seek to restrict long notice periods in the future, although he believes employers would still find ways to manage staff movement. Businesses are also exploring financial incentives to retain staff, with some City firms delaying and restructuring staff bonuses.