Andy Burnham has pledged to reform legislation around non-compete clauses, but not everyone is happy. Should we ban them? We hear the case for and against in this week’s Debate
YES: Non-competes lead to higher pay and better advancement
I’ve heard a lot of the arguments in favour of non-competes since we started our battle to ban them. They tend to go something like this.
“But what about our IP?!” This is a red herring. Non-competes have been illegal in California for decades. Few would argue that companies in the Valley have struggled to protect their IP and trade secrets. There is no reason to assume we couldn’t achieve the same thing here.
“But what about our clients?!” Another false argument. Non-solicitation agreements prevent employees from poaching clients or customers. If non-competes are banned, those protections could still remain.
“But what about our team?!” Employees aren’t property. Companies relying on restrictive contracts have a bigger problem on their hands; they know they would have to do more to keep their team if they could move freely. There is clear evidence for this: studies show that banning non-competes leads to higher pay and more opportunities for advancement.
While I’ve heard a lot of these arguments, they rarely come from entrepreneurs. They know the slow movement of talent is holding back growth and job creation. We recently surveyed 400 leaders of Britain’s fastest-growing companies. 87 per cent said non-competes are a hurdle to hiring. Critically, 79 per cent said the same about long notice periods.
A City insider said recently that if non-competes are banned, companies will simply make notice periods longer. I should thank him for making my argument for me; that’s exactly why we need to address both issues at the same time.
If we get this right, innovative companies will grow and hire even more quickly, incumbents will have to work harder to keep up, and workers will benefit from more freedom and better pay.
Eva Barboni is the executive director of Enterprise Britain
NO: Employees could be hired not for their skills, but their information
Banning non-compete clauses would be unnecessary and counterproductive.
Unnecessary because the existing law already strikes a fair balance between labour mobility and the protection of intellectual property, preventing abuses that impact an employee’s ability to move to another employer. Counterproductive because it would remove a vital protection for companies’ valuable commercial information and intellectual property.
Instead, we would end up with a regime where employees get hired not just for their skills, but also for the commercially valuable information they could share. Given the challenge the UK already faces with ideas and innovation being outbid for by deeper pockets elsewhere, banning non-competes would replicate that at the employee level.
In the financial, professional and broader services sectors – which make up around 80 per cent of the UK economy – much of the economically valuable intellectual property cannot be protected by patents or licences. Non-competes are therefore vital to protect investment in innovation – an essential component of the UK’s attractiveness as a place to build knowledge-based businesses. Changing the law would push employers towards other more complex, expensive and less transparent ways to protect their “secret sauce”.
Banning non-compete clauses would be like restricting patents and their legal protections. It would be damaging to the innovation and investment that drives growth across the nation.
The existing legal framework balances employers’ legitimate interests with employees’ freedom to work and move between jobs – we should not be trying to fix something that isn’t broken. Those arguing for it should be careful what they wish for.
John Godfrey is managing director of public affairs at TheCityUK
THE VERDICT
Andy Burnham’s pledge to restrict non-compete clauses, the use of which he says has “gone too far” and is now stifling innovation in the UK, has forged somewhat of a dividing line in the City.
While the news has been celebrated by those in the tech and startup world (including 22 British founders who signed an open letter calling for reform last month), more traditional execs from banks and hedge funds are less than pleased. Both sides have their case. Startup execs naturally value speed and change, which waiting around for your (or your prospective employee’s) non-compete period to expire does little to facilitate. Likewise, banks’s preference for stability and certainty, inclusive of not fearing your star stockpicker is about to be poached, is understandable.
But at this moment, as the UK faces an exodus of wealth, and ingenuity with it, it is clear the dial must shift more decisively towards change and risk-taking, of which a more liquid job market is part. The verdict: let them compete!