Ministers don’t seem to want a competitive tech sector, just a feel-good hill to die on
If you were hoping for legislative proposals, which, at the very least, are honest in what they think of themselves, last week’s paper released by the government entitled “smarter regulation”, was as lacking in humility as it was in political nous. If you think about smart motorways and smart meters and all the other things billed as intelligent, the use of the adjective left me rather troubled.
One of the most eye-catching proposals, certainly to City types, is the plans to legislate away non-compete clauses longer than three months, in a bid to boost competition. On the face of it, this is a radical change, unpicking at the fabric of common law on restraint of trade that dates back centuries to the days of master and servant. It is unprecedented in the context of employment contracts to see laws passed by parliament curb restrictions of this kind. But is it really smarter?
As is usual, there was little detail. But we know the intention is not to stop the use of non-solicitation restraints, paid notice periods or gardening leave, and to keep protections around confidentiality. So the focus on non-competes is an odd hill to die on.
The disparate treatment of non-competes compared to its less intrusive cousins is not entirely out of the blue. In 2020, the government put out consultation proposals to ban such restraints or make them enforceable only by paying out the employee as compensation. In the US, the Federal Trade Commission is also pondering a ban on non-competes, which can often run to two years stateside.
The pro-competition rationale for this time embargo is interesting. On the one hand, the government hopes that up to 5 million workers will benefit by being given greater choice and freedom to switch jobs. On the other, for employers, it is asserted that the change will allow them to grow and increase their productivity by widening the available candidate talent pool.
I am sceptical of the practicality of either objective. In the genus of post-termination covenants, the non-compete has always been at the very top of the hierarchy. Judges have always been most hostile towards these clauses as they seek to prevent a former employee earning their daily crust.
As a matter of public policy any non-compete that is unreasonably wide in length or scope is already bound to fail. Therefore, many employers have taken an unambitious approach when imposing these covenants on their staff. In the financial and professional service sectors, it is not uncommon for non-competes to be either short or non-existent.
However, in some sectors such as technology, non-competes are seen as vital in the fight to protect innovative data and IP. Sir James Dyson has already expressed his dismay at the proposed limitation and how this impacts UK tech, a sector which the government enthusiastically chest-beats, most recently calling the nation “Unicorn Kingdom”.
The proposal certainly seems tokenistic and misguided. Does this purported pro-competition reform really make the UK more attractive to invest in? I won’t be the first or last voice to say the obvious: more cogent measures such as reducing corporation tax or improving infrastructure would be far more effective.
Why tinker with an established canon of common law that has built up over many centuries for such limited gain and at the expense of alienating the very industries that are competitive and at the upper end of the batting order for the UK business community? It is a zero-sum game.
This reform may of course not make it onto the statute book in the time remaining for this government. But any future prime minister needs to think long and hard about sticking-plaster promises on competition.