Almost a third of UK employees are subject to ‘non-compete’ clauses that make it harder to switch jobs, according to new government research.
The new study from the Competition and Markets Authority (CMA) found that non-compete clauses - which stop employees from working at a competitor firm for a set amount of time after their employment ends - impact around 30% of workers.
This percentage increases to over 40% in ICT and professional and scientific services, the CMA said.
The report finds that non-competes are prevalent across the UK economy, even in sectors where one would not expect firms to need to protect their intellectual property – in retail, education, and food services, for example, around 20% of workers have non-compete clauses in their contracts.
As per the CMA, non-competes are typically justified “on the basis of enabling investment in workers through training or sharing confidential information, that employers may be less willing to do if employees might take these skills straight to a competitor.”
The report also revealed that around 24% of surveyed workers with a non-compete clause believe it has made it harder for them to leave their current employer to join a competitor.
The CMA warned that competition agencies and governments around the world are increasingly concerned about so-called ‘restrictive covenants’, such as non-compete clauses, that limit the mobility of workers.
“Competition agencies have been especially concerned about direct clauses such as non-compete agreements that restrict workers from seeking employment at a competitor or starting their own competing business,” the report found.
In a speech unveiling the report, Sarah Cardell, the CMA’s chief executive, said: “There is often a legitimate reason for these restrictions in improving firms’ incentives to invest in training for their workforce.
“However, the evidence in this paper is that the prevalence of non-competes across industries and income levels suggests that not all non-competes protect substantial training or client relationship investments.”
Cardell added: “The widespread prevalence of non-competes across the economy could act as a barrier to job switching.
“Employment law and policy is obviously a complex and multi-faceted area that goes well beyond the remit of competition authorities, but we hope the evidence in the report helps inform policy makers as they consider the many different factors they are balancing.
“We note that the UK government has announced that they will legislate to limit post-term non-competes to 3 months in Great Britain. Our evidence supports this direction of travel.”
Indeed, the Department for Business and Trade (DBT) recently proposed legislation that would limit the use of non-compete agreements.
What does it all mean for HR?
Suliat Jimoh, Paralegal at Winckworth Sherwood, says that, although we as yet have no clue as to when these potential provisions on non-compete clauses will come into force, it would "be wise for employers to even now be contemplating new practical ways to protect their businesses, interests and particularly confidential information."
Jimoh says: “Although we are still waiting for the specific details... of the proposed changes, the impression is that it will still be permissible for employers to use other types of restrictive covenants such as non-solicitation of or non-dealing with clients or non-poaching of employees, without the time limitations being applied to non-competes. Further the better utilisation of garden leave provisions, longer notice periods and confidentiality clauses could also be a way to shield their business interests from being damaged.
“Further, employers could also consider not relying solely on employment contracts but also workplace contracts, which will not be caught by these 3-month limitations.”