A start-up in the tech hub around Old St in London: the government wants to encourage entrepreneurs to be able to move freely from and between companies © Oli Scarff/Getty Images

UK ministers are planning to make it harder for employers to block staff from leaving to set up rival companies, in an effort to nurture more start-up businesses, particularly in the technology industry.

The government is keen to curb the use of so-called non-compete clauses in employees’ contracts to try to foster an entrepreneurial culture similar to that in Silicon Valley, according to people briefed on the plans. 

Typically these clauses prevent a worker from competing against his or her former employer, and can include restrictions on former staff approaching their previous clients or helping rival companies for a set period of time.

The government is concerned that current use of the clauses by employers is holding back the creation of start-ups, by thwarting workers from leaving jobs and setting up their own businesses.

In California, where state law makes non-compete clauses unenforceable, the free movement of talented workers has been one of the reasons given by entrepreneurs for rapid growth of the technology sector.

The government is looking at whether reform in this area in the UK could enable similar free movement of bright individuals.

The business department is set to launch a public consultation about the government’s plans in the coming days.

Ministers are not expected to ban non-compete clauses outright, but officials are likely to look at whether they are well targeted and reasonable, given UK employment law around confidentiality and intellectual property already protects company secrets.

Ministers are set to emphasise that the public consultation is only into non-compete clauses and not confidentiality or intellectual property, said one person familiar with the plans.

Government officials have sounded out executives in the tech industry, who have voiced their support for reform.

However, any changes are likely to upset established companies, which fear losing their most talented people.

Many start-ups based in London are set up by entrepreneurs from the EU, who have moved to the UK to benefit from its talent pool and tax regime.

But tech executives are concerned that the end of the Brexit transition period might deter EU start-ups from moving to London.

Downing Street is looking at a number of ways to create a more entrepreneurial framework in the UK, according to one person close to the discussions.

The ability of the government to invest in start-ups is seen as a big reason why British ministers are pushing to deviate from EU state aid rules after the Brexit transition period — in what has become one of the outstanding issues in the trade deal talks between the two sides.

While this could help by providing state support to promising start-ups — which are often otherwise acquired by global tech companies — the government also wants to make sure that new businesses are being founded in the UK.

Ministers are sympathetic to the idea that non-compete clauses inhibit economic growth and innovation, while reducing investment in research and development, according to government officials.

However, some experts said these clauses encouraged employers to invest in skills and new technologies because they do not fear losing staff to rivals.

Sinead Casey, a partner at the law firm Linklaters, said the clauses usually applied for up to 12 months, although they could last as long as two years in the context of a business sale.

She added that the areas where the clauses were most common tended to be in the City of London — for example in insurance — where client relationships are important.

HSBC banker Charlie Nunn, who was named on Monday as Lloyds Bank’s new chief executive, has a notice period of six months and “post-termination restrictions” of up to a further six months, for example.

The business department did not immediately respond to a request for comment.

Get alerts on UK employment when a new story is published

Copyright The Financial Times Limited 2021. All rights reserved.
Reuse this content (opens in new window)

Follow the topics in this article