UK: Do Non-Compete Clauses Stifle Entrepreneurship And Innovation?

Last Updated: 5 July 2016
Article by Rachel A Farr

The UK government wants to make Britain the best place in Europe to innovate and start up a new business and, in order to encourage this, "want[s] to look at our employment rules and whether they could be stifling British entrepreneurship by preventing workers from starting up their own business after leaving a job."

In order to do so, the Department for Business, Innovation and Skills (BIS) has published a Call for Evidence asking for information on what is meant by non-compete clauses, when and how they are used, their prevalence, what the benefits and disadvantages are, whether there is transparency or misperceptions, and evidence of the effect they are having on start-ups, employers and workers.

Taylor Wessing will be making a response to the Call for Evidence – let your views be part of it by completing this short survey, or by getting in contact with us at lawatwork@taylorwessing.com.

Most jurisdictions permit post-termination employment restrictions in one way or another, although the details may differ. However, in California, non-compete clauses are unlawful. Massachusetts is considering a similar ban. US research suggests the limited use and enforcement of such clauses has had a positive impact, as non-compete clauses reduce the pool of labour from which competitors can hire, restrict workers setting up their own business, and the call for evidence says that there is evidence to suggest that the enforcement of non-compete clauses can reduce investment in research and development.

On the other hand, others say that non-compete clauses are an essential practice that encourage employers to develop new technologies and invest in working training.

While the Call for Evidence says that the UK labour market is thriving and "one of the main drivers of this success is the high degree of flexibility enjoyed by both employers and workers in the UK", there needs to be a balance, suggests BIS, between an employer protecting its business interests when staff move on, and making sure the worker is not unfairly disadvantaged.

The current UK position of non-compete clauses

Although the Call for Evidence uses the term "non-compete clauses", they are using the phrase to refer more widely to post-termination employment restrictions (also known as restrictive covenants), which may be drafted to prevent

  • former employees working for a competing business (including their own start-up) for a period of time
  • Former workers having dealings with the previous employer's customers or contacts
  • Former workers hiring colleagues from their old job
  • Former workers setting up a business in a geographical location that would disadvantage their old employer

Such clauses are governed by the common law principle of restraint of trade, and are unenforceable unless they are designed to protect legitimate business interests and go no further than is reasonably necessary. Each case will be considered by a court on its facts but legitimate business interests may include trade connections (with customers, clients, or suppliers), goodwill, protecting trade secrets and confidential information, and protecting the stability of the workforce.

The Call for Evidence notes that "There is no set formula of whether a non-compete clause is valid and as such there is no 'tick list' for an employer to follow to ensure such clauses are successful" – is this a hint as to what the government might have in mind?

Questions and areas for consideration

The government is asking:

  • For examples of non-compete clauses – are any of the types mentioned above being incorrectly categorised as non-competes? Are there any other types of clauses which restrict a worker's ability to complete?
  • How prevalent are non-compete clauses across the UK – are they particularly used in certain sectors, or for certain roles, or more widely?
  • Have you as an employer used a non-compete clause? If so, why? What was the type of job, and what was the restriction? Have you ever had to challenge a former employee about a possible breach?
  • Have you as a worker been subject to a non-compete clause? If so, what was the type of job, and what was the restriction? Were you aware of the clause and what it meant when you signed your contract? Have you ever disregarded a non-compete clause – what happened next?
  • Have you experience of such a clause affecting or preventing workers moving job or an employer's decision to hire, or starting up a new business?
  • Would legislation to restrict non-compete clauses in certain situations affect your business, or lead to unintended consequences? What types of businesses might benefit from additional restrictions? Do you think existing intellectual property and confidentiality law is sufficient to protect employers' business interests?
  • In your experience (whether as employer, individual, or adviser), are non-compete clauses transparent? Are you aware of any guidance, and could it be improved?

Next steps

The consultation closes on 19 July. Taylor Wessing will be responding to the Call for Evidence – and we'd love to include your views. Please click here to complete our short survey asking what you think, or get in contact with us at lawatwork@taylorwessing.com if you prefer. Alternatively, you can respond directly.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Emails

From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.