As someone who is now involved in their 10^th injunction in the last year, of which 50% have been for employers (i.e seeking to enforce non-compete clauses), and 50% for employees (seeking to oppose non-compete clauses), I think it is right to respond to the article in The Times this week, quoting a recent survey of UK business leaders by Enterprise Britain, which found that 90% were urging UK businesses (UK PLC) to scrap non-compete clauses. The article goes on to compare the UK’s more restrictive employment contracts unfavourably with its US counterparts.

For the reasons set out below, the position in the UK is a little more nuanced than that applicable in Silicon Valley.

What do ‘Non-compete’ clauses mean?

For a start, we need to understand what the proposal to scrap ‘non-compete’ clauses means. The government has recently consulted on the proposed reform of such clauses and ELA, my trade body, has produced an excellent paper in response. The proposal for banning non-compete clauses is simply this: to ban the enforceability of restrictive covenants which prevent employees from taking up new employment with a competitor. There is no proposal or recommendation to ban any other form of post-termination restrictions to include non-solicitation (or dealing with clients; non-poaching of employees or non-misuse of confidential information).

The UK is not the same as Silicon Valley

Second, it is a ‘stretch’ to compare the UK, which is a big, sprawling, sophisticated economy, with the almost unique (in the entire world) economic ecosystem in Silicon Valley. There, rates of pay, particularly as regards equity and incentive schemes, are such that employees are financially encouraged to adhere to their post-termination restrictions. In other words, their employers do not need to include swinging non-compete clauses in contracts of employment, because there are equivalent forfeiture provisions in equity arrangements which those employees have in their high-performing startups. If they go and work for a rival, then they will either (a) lose the incentive package they have in their current employer or (b) their new employer will ‘make them whole’ with an equivalent new incentive package.

Therefore, adherence, or not, to non-compete clauses in Silicon Valley is often conditioned and determined by compliance with these collateral equity agreements which sit alongside the contract of employment, but are not strictly a part of it. Nevertheless, because they often involve hundreds of thousands, if not millions of dollars, then they are incredibly incentivising in terms of adherence.

The final point in The Times article is the reference to notice period, rightly noting that in the US employers sometimes have notice which is terminable ‘at will’, whereas in the UK the typical notice period is three to six months. The article suggests some of these notice periods may be too long, but these are contractually agreed and the employer will often pay the employee in full during a period of ‘garden leave,’ when they sit at home (on full pay) at the employer’s request, itself a form of restrictive covenant. Most people would feel there is nothing inherently wrong with this because the employee is in receipt of full pay and the employer has some form of protection.

What feels morally different is if an employee is asked to sit out of the market for a period of months, subject to a total non-compete clause and without pay. That can amount to a post-termination restriction, but such provisions are enforceable provided that the employers have a legitimate business interest.

It would be possible to write in greater length in response, but I raise these points for now. There is a danger in comparing the UK and its many different economies to one extremely high performing (and highly incentivised) part of the US economy. The direction of travel in the UK will likely be to continue a more nuanced approach to non-compete adherence.

With roughly 5 million employees in Great Britain bound by employment contracts with non-compete clauses (according to figures produced by the London School of Economics), it is right to ask questions and I await the outcome of the government consultation with interest. But in my opinion, if one wanted to truly reform the way in which post-termination restrictions are enforced in the UK, the better focus would be to look at the ease with which interim injunctions are granted in London in the High Court, in particular. I have written about this here.