The UK’s Competition and Markets Authority (CMA) is throwing its weight behind major reforms to non-compete clauses in employment contracts, arguing that these restrictions are stifling economic growth and innovation.
In a new working paper response, the CMA endorses a plan that could ban non-competes for lower-paid workers while capping their duration for higher earners – a move that could free up labour mobility for millions and supercharge productivity.
Non-compete clauses, which prevent employees from joining competitors or starting rival businesses after leaving a job, are surprisingly common in the UK.
According to the CMA’s research, about 26% of workers believe they’re bound by one, with usage spanning all sectors and income levels. That’s roughly one in four employees potentially locked out of better opportunities, even if they’re unsure about the exact terms. Another 23% of workers say they aren’t certain if they have such a clause.
The CMA’s stance comes amid the UK government’s push to revamp labour market rules as part of its broader growth agenda. The report notes that ‘healthy and competitive labour markets are a powerful driver of economic growth’ and that high labour mobility fuels innovation and allows talent to flow to the most productive firms.
Studies cited in the paper suggest that reduced movement of labour and capital could explain up to 60% of the UK’s productivity slowdown since 2008.
Why non-competes are in the crosshairs
The CMA paints a picture of non-competes as a ‘broad and often blunt’ tool that harms the economy more than it helps. While they might protect employers’ investments in training, client relationships, or trade secrets, the CMA argues there are better alternatives like non-disclosure agreements (NDAs), claw-back provisions for training costs, or paid ‘garden leave’ periods during notice.
Evidence from the CMA’s 2024 report on UK labour markets shows these clauses are everywhere, from tech and professional services (where over 40% of workers report having them) to lower-wage jobs.
The CMA’s work with scale-up businesses and AI foundation models highlights access to talent as a ‘major barrier to innovation and scaling’, particularly in high-growth sectors like the UK’s eight Industrial Strategy priorities.
Internationally, the tide is turning against non-competes. The report points to California’s long-standing effective ban, which many credit for Silicon Valley’s explosive growth through employee mobility and knowledge spillovers.
Other places like Australia (set for a federal ban in 2025), Washington State, and EU countries such as France and Germany have imposed restrictions, including salary thresholds or mandatory compensation. Studies, like one on Austria’s 2006 reform, show bans for lower-wage workers boost job transitions, especially to higher-quality firms with pay bumps.
In the UK, the impact could be huge. A 2023 Department for Business and Trade assessment estimates non-competes block up to 400,000 employees from competing for jobs or startups. The CMA’s Growth and Investment Council calls skills shortages one of the biggest hurdles for scaling firms, and non-competes may be exacerbating that by limiting talent flow.
The proposed fix: A balanced ban
The CMA isn’t calling for a total wipeout but instead backs a combined approach from the government’s working paper.
This includes a full ban on non-competes for workers below a certain salary threshold, paired with a statutory time limit (likely around three months) for those above it.
This hybrid model aims to strike a balance. For lower earners – where 48% of families have less than £1,500 in savings, per the 2023-2024 Family Resources Survey – going without pay to sit out a non-compete isn’t feasible.
Higher earners, with more negotiating power and financial cushions, might handle shorter restrictions better. Survey data shows 90% of aware employees don’t negotiate these clauses, often seeing them as non-negotiable, but shorter durations (under three months) make bargaining more likely.
Narrower reforms, like just capping duration across the board, wouldn’t cut it for many, the CMA says. It notes that a blanket ban might go too far, ignoring cases where non-competes legitimately boost productivity through training incentives.
What happens next?
The CMA said it is positioning itself as a key advisor, ready to help refine details like the exact salary threshold or implementation. This aligns with its broader mission under the Enterprise Act 2002 to guide policy on competition and consumer issues.
If adopted, the reforms could ripple through the economy, easing talent crunches for startups and scale-ups while giving workers more freedom.
But businesses reliant on non-competes might need to pivot to those alternative protections.
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