26% Of Workers Subject To Non-Compete Clauses
As we highlighted in a previous article, the Government announced back in May 2023 that it planned to legislate to limit non-compete clauses to 3 months post-termination of employment. However, despite that, there have been no further developments since that announcement, and it appears unlikely that anything will happen this side of a general election
Nevertheless, new research conducted by the Competition and Markets Authority (CMA) has found that 26% of all workers are subject to non-compete clauses, and of those that are subject to non-compete obligations, 24% believe that those non-compete obligations made it "made it harder for them to leave their current employer to join a competitor."
Commenting upon the report, the Chief Executive of the Competition and Markets Authority (CMA), Sarah Cardell, stated: "The widespread prevalence of non-compete clauses across the economy could act as a barrier to job switching" and the evidence found in the report reinforced the "direction of travel" in terms of the Government's plans to limit non-compete clauses to 3 months post-termination of employment.
Cardell also added that the report "provide[d] helpful insights to inform thinking across the academic and policymaking community, at a time when we are all seeking ways to stimulate our economy and make people better off. The CMA will also use the findings to inform our own work to combat anti-competitive conduct in labour markets, including our ongoing investigations into suspected anti-competitive agreements between employers."
In terms of the impact upon the wider economy, any decision to limit the duration of non-compete clauses is a careful balancing act as it can have both benefits and adverse consequences.
The benefits to the wider economy of limiting the duration of non-compete clauses include the following:-
- Promotes innovation and competition: When employees are constrained by restrictive covenants, they are less likely to take risks, launch new ventures, or develop groundbreaking ideas. By removing these barriers, the wider economy benefits from increased entrepreneurial activity and a greater flow of new ideas to the market
- Enhancing labour mobility: Freedom to switch jobs promotes healthy competition among businesses, as they must strive to attract and retain talent through better working conditions, benefits, and compensation packages. Increased labour mobility also fosters knowledge transfer and cross-pollination of ideas throughout different industries, promoting economic growth.
- Stimulating job creation: Increased labour supply fuels job creation, as companies are more willing to hire when they have access to an increased supply of qualified candidates. As a result, the wider economy benefits from reduced unemployment rates and improved economic stability.
- Fosters fair competition: the marketplace becomes more open and transparent, allowing for fair competition among businesses. When employees are free to move between competitors, it promotes a level playing field that encourages innovation, quality, and customer-centric approaches.
Nevertheless, there is also a downside to limiting the duration of non-compete clauses, including the following issues:-
- The need to protect intellectual property and investments: In industries driven by innovation, such as technology or pharmaceuticals, severely limiting these clauses could prompt talented individuals to move more freely between competitors, potentially facilitating the unauthorized disclosure of sensitive information. This, in turn, might deter companies from investing in groundbreaking research and development projects, thereby slowing down overall progress within these sectors.
- Negative impact upon entrepreneurship and start-ups: By preventing workers from starting a new venture in direct competition with their former employer, non-compete clauses incentivize innovation within existing companies. Limiting them could lead to a rise in start-ups directly competing with established businesses, potentially diluting market share and revenue streams. This can discourage investment and reduce job opportunities, ultimately hampering economic growth.
- Maintaining confidentiality and trade secrets: Non-compete clauses help preserve confidentiality by deterring employees from sharing insider information with competitors or using it to their own advantage. Without these clauses, companies may find it harder to protect their trade secrets, potentially leading to increased instances of intellectual property theft and a decline in business competitiveness.
- Adverse impact on small and medium-sized enterprises (SMEs): limiting non-compete clauses may disproportionately impact smaller businesses and start-ups without the resources to enforce legal protections for their intellectual property or trade secrets. As larger companies with established brand names can afford to invest heavily in legal battles to protect their interests, smaller enterprises may face significant challenges when competing against former employees who join rival firms or start their own businesses.
34% Of Businesses Short-Staffed At Least Once A Week
A new survey conducted by Indeed Flex has found that 34% of businesses report being short-staffed at least once a week, with a further 23% reporting that they encountered such a problem at least once a month. Furthermore, 49% of those that find themselves short-staffed stated that it was caused by employees being off work sick.
Moreover, the survey also found that 24% of businesses have found it difficult to recruit so far this year due to labour and skills shortages.
Commenting upon the findings, the CEO of Indeed Flex, Novo Constare, stated: "Employers are fighting hard to fill vacancies, but in such a tight labour market many are forced to leave gaps in their rotas on a regular basis. This is a big problem for the UK economy, as it reduces productivity and can lead to workers doing more overtime and ending up feeling burnt out."
