Burnham to clamp down on ‘unfair’ non-compete clauses

Prime Minister Andy Burnham is set to introduce measures to address the issue of lengthy notice periods and non-compete clauses in employment contracts, aiming to stimulate the jobs market for highly skilled workers. The announcement will come in a speech today, where Burnham plans to tackle the widespread use of strict employment conditions that require staff to provide up to 18 months' notice before leaving a job and restrict their ability to join or establish a competitor.

These clauses have gained prominence in the tech and finance sectors, where employers are worried about former employees utilizing their intellectual property at rival companies. However, the stringent legal requirements have also posed challenges for fast-growing tech firms, hindering their capacity to swiftly hire talent essential for their growth.

Many finance and "big tech" companies demand notice periods of up to 18 months, leaving employees economically inactive for several months during gardening leave. Last month, numerous Britain's fastest-growing startups urged the government to intervene in the "unfair" employment hurdles, predominantly prevalent in the UK. In a letter to Burnham and business secretary Jonathan Reynolds, executives from companies such as Synthesia, Fuse Energy, and Elevenlabs labeled labour immobility as "a classic collective action problem," emphasizing that these terms lead to lower wages, reduced competition, and hinder innovation that fuels economic growth.

Enterprise Britain, a pro-innovation lobby group founded by Ovo Energy founder Stephen Fitzpatrick and lastminute.com co-founder Brent Hoberman, discovered in a recent study that hiring costs and recruitment challenges are impeding their growth. A staggering 87% of scale-up bosses identified non-compete clauses as a barrier to their hiring plans, while 75% stated that such barriers could generate at least 10% more jobs if removed.

Researchers argue that more lenient labor conditions played a crucial role in Silicon Valley's rapid expansion. The UK's founders have sometimes had to hire talent from the US due to the quicker and easier hiring process there compared to domestic rivals. Burnham is expected to unveil the clampdown in a speech in Manchester alongside Reynolds and former Prime Minister Gordon Brown, as reported by the Financial Times.

However, this move may face resistance from representatives of more established businesses, who have previously argued that there is insufficient evidence suggesting that these conditions impede innovation.