‘Non competes’ – Deja vu all over again

Compare and contrast the following statements, each made under the auspices of the Secretary of State for Business, Enterprise, Innovation and Science.

“The consensus view … was that restrictive covenants are a valuable and necessary tool for employers to use to protect their business interests and do not unfairly impact on an individual’s ability to find other work. Common law has developed in this area for over a century and is generally acknowledged to work well. Having built up a picture of the UK experience via this call for evidence, we have decided it is not necessary to take any further action in this area at this stage“

Greg Clark, 2018

Today’s plans also look to reform the use of non-compete clauses, which can prevent individuals from starting up or joining competing businesses after they leave a position. The move will ensure talented individuals have the freedom to apply their skills in another role if they wish while unleashing a wave of new start-ups across the country….

The government is also seeking views on whether it is necessary to go further and ban non-compete clauses all together.

Alok Sharma, 2020

Not much has changed in the law in the last two years but what was apparently ‘working well’ in 2018 is in need of far-reaching reform, or even abolition, in 2020. First trailed in the FT earlier this week, and confirmed today, the Government is looking once again at non-compete clauses, or ‘post-termination restraints’ or ‘restrictive covenants’ as they are more commonly known in the UK. “Non-compete” is the American term, and the Government’s use of it reveals an ancient (well, four years is a really long time) fixation.

In 2016 (the last time the Government consulted on non-competes), it was widely understood that the Government’s thinking was inspired by America, or at least the State of California. in 2020, that is expressly the case: the consultation specifically references California and, this time, Israel too. The technology sector has flourished in both in part, it is thought, because non-compete clauses are unenforceable (California) or their use severely restricted (Israel). Employees are therefore much more free to move around. Non-competes stifle all competition, fair or unfair.

However, after the 2016 consultation, ideas of reform were quietly dropped. This was confirmed in the Government’s response to the Taylor Review, from which the first quote is taken.

Apparently though COVID19 has changed everything. The Government does not say how so in relation to non-competes but asserts emphatically that it has. Something, it seems, must be done.

“…COVID19 has changed everything“

And there are things that can be done. It is true that lots of responses were broadly in favour of the status quo, but that wasn’t to say that the Government weren’t given ideas for reform. They were told some countries limit the length of non-competes; others require employees be paid for the period of restriction the non-competes impose. Those ideas are specifically part of this new consultation. Indeed, it is obvious that the Government has learned from the 2016 exercise: for example, its explanation of the law in the consultation document is in part lifted word for word from the Employment Lawyers‘ Association submission to it.

Non-competes are tricky to draft, difficult and expensive to enforce: they must be capable of improvement. Arguably, though, they should not be easy to use. We are after all talking about ways of stopping people from earning a living. One does not have to be a dyed-red socialist to believe that in the age-old struggle between capital and labour, capital nowadays very much has the upper hand. The Government’s reforms do ostensibly favour employees.

“…the consultation document is in part lifted word for word from the Employment Lawyers’ Association…”

The consultation asks whether the employer must specifically pay for the benefit of any post termination restraint, but there is much ‘tidying up’ that could also be done. Could statute have a go at the the ‘blue pencil’ test, for example, after the Supreme Court largely passed up on the opportunity?

That said, query if any of this would give the Government what I suspect it wants here which is a grand gesture. One cannot help but think that whilst they are asking about reform that what they really want is their second option: abolition. We are perhaps to become figuratively as well as literally the West Coast of Europe.

If that means we get Ghirardelli’s chocolate, I’m all for it but I am not sure that the abolition of non-competes is going to be enough to turn the Thames Valley into Silicon Valley. Two years ago, the Government appeared to agree. And this time, the Government expressly acknowledges that there were other factors in California’s success. Still, this one is superficially easy to replicate and apparently free to implement. But ecosystems are complex things and the Government has already hacked away at part of Britain’s. Brexit has made it harder to UK tech to attract talent from the EU, talent which many tech companies said was key to them. Query if this and not COVID is the real reason for these proposals. The Government has taken an orange but is holding out an apple.