UK tech founders urge Burnham to curb non-competes to match US rivals

The founders of several leading UK tech start-ups are calling on the government to limit the use of non-compete clauses and extended notice periods, arguing they hamper British businesses’ ability to compete with Silicon Valley.

A joint letter to Prime Minister Andy Burnham and the trade secretary, which was seen by the FT, argues that restrictions on job moves including non-competes, months-long notice periods and enforced gardening leave can inhibit entrepreneurship, “reduce competition” and “undermine the innovation that drives economic growth”.

The letter is signed by more than 20 founders, executives and investors of British start-ups including AI labs ElevenLabs, Synthesia, Ineffable Intelligence and Recursive Superintelligence; upstart electricity supplier Fuse Energy; and chip developers Olix and Fractile.

Teddy Collins, co-founder of Inherent Laboratories, the London-based AI start-up that co-ordinated the letter, said the changes were necessary to help sectors such as AI keep pace with US rivals at a time when the technology is advancing so rapidly.

However, the call pits fast-growing start-ups against the financial sector, which has long used the clauses to safeguard intellectual property and talent. It comes as the government prepares its response to a consultation into the use of non-competes held last year under Sir Keir Starmer’s government.

Options consulted on by ministers included an outright ban; limits on the length of time they can apply; or an earnings threshold that would protect low-wage workers while leaving the higher paid to fight their own corner.

Access to talent has risen up the policy agenda for UK-based entrepreneurs after several well-known Google DeepMind staffers have left the Big Tech group’s London offices to launch their own AI labs, raising millions from venture capitalists.

The issue was discussed at a roundtable this month between ministers, including first secretary of state Louise Haigh, Varun Chandra, the prime minister’s chief business envoy, and James Purnell, Downing Street chief of staff, and tech founders, including several signatories of the letter, according to three people familiar with the matter.

The government was understood to be considering the calls but had yet to form a concrete view, one of the people added.

More than a quarter of UK employees are subject to non-compete clauses that make it harder to switch jobs, according to previous research by the Competition and Markets Authority, which sees reform as “a significant opportunity to support labour mobility”.

In the UK, there are few restraints on employers including non-competes in contracts, although they must show a clause is reasonable to enforce it in court. Elsewhere, efforts to curb the use of non-competes have had mixed results: a longstanding ban in California has not stopped some employers writing the clauses into contracts, even though they cannot be upheld in court.

In Europe, Germany already limits the duration of non-competes to three months, while Spain can fine employers that use them wrongly. Australia plans to limit their use to high earners.

However, many City employers oppose such changes.

Miles Celic, chief executive of industry group TheCityUK, told the FT that limiting non-competes was “an unnecessary idea, addressing a problem that doesn’t really exist, damaging UK attractiveness into the bargain”.

Matthew Percival, who works on employment policy at the CBI, added that the industry group had “not seen compelling evidence that non-compete clauses are a drag on innovation or a material hindrance on labour market mobility”.

To illustrate what the tech industry sees as the problem, Inherent pointed to the case of one prominent researcher who recently left a Big Tech company in London and was held to a 12-month non-compete agreement by his former employer.

Recommended

Collins also cited his own company’s delay in launching due to his co-founders’ three-month non-compete clauses after leaving Google DeepMind.

“UK AI-related economic growth has happened in spite of, not because of these restrictions,” he said.

A UK government spokesperson said they wanted the “best investors and entrepreneurs” to stay in Britain and knew “restrictive practices” could “pose a barrier to that”. “That is why we have sought views on a range of options for reforming non-compete clauses in employment contracts . . . We will continue to engage with businesses and stakeholders as we consider the next steps,” they added.