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Non-compete clauses under the competition regulator’s spotlight
Non-compete clauses under the competition regulator’s spotlight
5 February 2024
Series
Blogs
5 February 2024
It has been almost nine months since the UK government announced it would limit the length of non-compete restrictions to three months (see our earlier blog here). As the clock counts down to the next general election, many will be wondering whether the proposals will be abandoned.
However, a recent report by the Competition and Markets Authority has reinvigorated the discussion.
In May last year, the government announced that it would be introducing legislation ‘when parliamentary time allows’ to limit the length of non-compete restrictions to three months in a bid to boost competition and innovation. The move was part of a global shift towards restricting the use of non-competes, giving greater freedom to individuals looking to move jobs.
However, there has seemingly been no progress since then nor has the government given a clearer indication of the timeframe for introduction.
On 25 January 2024, the CMA published research on the UK labour market including new data on the use of non-compete clauses, bringing the topic to the forefront once again.
High prevalence of non-competes
Finding that non-compete clauses are prevalent in the job market - roughly 26% of workers are subject to non-competes, rising to 40% in certain sectors1 - the regulator’s Chief Executive, Sarah Cardell, commented that employment law ‘may need updating’. In her view, the report’s findings underscore the government’s proposals to limit non-competes to three months, with the widespread use of non-competes potentially acting as a barrier to workers switching jobs. Read more in her speech here.
Non-competes used across the spectrum of earnings brackets
Non-competes were found to be used across all income levels, with 20-30% of workers in lower-paid jobs believing they were subject to one. This widespread prevalence, the report submitted, indicates that they may be being used where they fulfil no purpose, unnecessarily restricting workers’ activities after termination. Whilst this means they are unlikely to be enforceable in law, some employees may (wrongly) believe that they are bound by them, suppressing movement in the job market.
Limited employee awareness of non-competes
At the other end of the spectrum, the report found that nearly a quarter of employees were unsure whether they were subject to a non-compete at all. This could be problematic for both departing employees as well their new employers as it may increase the risk of inadvertent breaches of restrictions. Reminding departing employees of their continuing obligations after termination and ensuring covenants are discussed and refreshed as necessary during promotion rounds can help to minimise this risk.
Non-competes typically last six months
The CMA’s report also considered the typical duration of non-compete clauses. Findings align with the government’s consultation response – most last for around six months. This highlights the widespread impact a cap of three months is likely to have and the extent of the shift in practice that may be required to comply. As some employers start considering their options, uncertainty remains over how existing non-competes of over three months would be treated (e.g. would such non-competes entered into before the new law comes into force remain potentially enforceable (even if they exceed three months), would they be void in their entirety such that an employer has no protection, or would they be unenforceable beyond three months?).
Whilst the CMA is not generally concerned with contracts between employers and employees or traditional collective bargaining agreements, shifts in ways of working have led to increased antitrust scrutiny of employment issues.
In particular, their report cites the rise of the “gig economy” with individuals often treated as self-employed contractors which has led to concerns that gig platforms may hold ‘disproportionate market power vis-à-vis workers’. Undoubtedly the ever-changing nature of work, including the growth of the gig economy, gives rise to new questions for both employment and antitrust practitioners to grapple with.
For now, the political landscape on non-competes remains uncertain. But the CMA’s scrutiny on labour markets is set to stay and may well influence future developments in this area.
Read more:
HR issues in antitrust – competing or cheating?
Reform of non-compete clauses – the knowns and the unknowns
Team Moves: Poached and Poacher