Are non-competes holding businesses back?

On 26 November the Government issued a consultation paper on the use of non-compete clauses in contracts of employment. As you can see from the quotes from the paper, the Government is firmly linking this proposal to their “growth mission”.

Non-compete clauses (and related clauses such as non-solicitation of customer clauses) have always raised issues about the correct balance between encouraging employers to grow and invest in businesses and limiting an individual's freedom to contract and move employment. 

The Government clearly believes this issue should be re-addressed. A number of options are put forward including banning non-competes altogether and limiting the time they can operate, depending on company size.

It is true that non-compete clauses can be a serious disincentive to employees wishing to move to another job, but on the other hand, why should an employer invest in an employee's market reputation if that employee is free to use that market reputation to compete against it upon leaving?

In our experience, most outgoing staff do not specifically want to compete with their former employers but they are often unsure whether their new employer might be considered a competitor. This uncertainty can discourage them from leaving. In my view, employers can usually achieve reasonable protection through other measures, such as non-solicitation of customer clauses (or even garden leave clauses), making it timely to reconsider the use of non-compete clauses.

If these issues concern you, please do consider the issues in the consultation documents. For employers with non-compete clauses in their contracts, now is the time to consider alternative ways to protect business interests since the use of non-competes may become restricted or limited.