The Prime Minister revealed last Friday that the government will curb non-compete clauses in employment contracts, a move that has raised some eyebrows in the City. But despite business pushback over yet another overhaul of employment laws, City lawyers have already been 10 steps ahead with alternatives, Maria Ward-Brennan writes.
Andy Burnham, in his speech at the Innovation Nation Summit, said the government will introduce legislation to crack down on lengthy notice periods and non-compete clauses in employment contracts after saying some clauses have “gone too far”, as he aims to free up the jobs market for highly skilled workers.
In some sectors, such as tech, finance, and insurance, non-compete clauses are common because these businesses require people with specialist skills and there is a fear that former staff will use a firm’s intellectual property to their advantage at an industry rival.
Some employees will be happy with the government’s move, as restrictions on where and when people can work are often ruthlessly enforced and can gum-up career moves.
But some parts of the City have not responded well. The risk is losing staff and IP at a time when they are already dealing with a major overhaul of UK employment rights.
“Many employers in the City view non-compete provisions as essential protection to ensure that key individuals are not able to ‘jump ship’ quickly, taking with them key relationships, knowledge and business strategy,” explained Mark Callaghan, senior associate at law firm Littler.
David Palmer, partner at Addleshaw Goddard, added to City AM, “There are already safeguards in place to protect against unreasonable non-compete clauses; there is a very long body of case law that restricts how they can be used.”
However, Burnham’s move didn’t come out of the blue.
Last year, the Department for Business and Trade (DBT) launched a consultation on restrictions on non-compete clauses in employment contracts, with feedback closing in February. This led some lawyers, including Palmer, to plan ahead with clients, as City AM noted in August, to look at alternatives in case this plan went ahead (which it clearly did).
Surge in gardening leave clauses set to come
Palmer explained that “most companies will just find another way to restrict employee movement” in order to “protect their own interests”. He suggested that businesses that use non-competes as standard will now lean more on gardening leave instead, as “it has largely the same effect.”
Garden leave is a contract clause that outlines the period when an employee stays on the payroll during their notice period after resigning or being dismissed, but is instructed to stay away from the workplace and not perform any duties.
Last year, it was reported that Google DeepMind extended gardening leave from six months to 12 months for departing UK-based staff working on sensitive projects like Gemini.
Palmer added, “We could see the government seek to restrict long notice periods too, to try and close that gap, but I don’t think it would get rid of every way employers can stop or postpone staff from moving to competitors. Also, long notice periods more often than not benefit employees, as they get paid longer.”
Other plans include keeping staff tied to the business with financial incentives, as some City firms have sought to delay and restructure staff bonuses.
Businesses are already grappling with the biggest overhaul of workers’ rights in a generation, with more stages of the Employment Rights Act set to come into force next January. But over the last year, we’ve learned that top City employment lawyers, the busiest lawyers in town, have been advising businesses on what they need to know and how to manage the changes, including alternative options to add to workers’ contracts.