US proposes ban on non-compete clauses, citing UK growth drive

• The UK government plans to legislate a three-month cap on non-compete clauses.
• The US FTC has proposed a complete ban on non-compete clauses.
• Non-compete clauses in the UK typically last six months and affect about 5 million employees.
• The UK government aims to boost competition and innovation with the proposed cap.
• The US FTC's proposal aims to give employees more flexibility to change jobs or start businesses.

The UK government is considering significant reforms to non-compete clauses in employment contracts, aiming to boost economic growth and innovation. On May 10, 2023, the government announced plans to legislate a three-month cap on the duration of these restrictions. Currently, there is no specific legislative framework in the UK governing non-competes, and common law principles apply, requiring them to be no longer than necessary to protect an employer's interests. Case law suggests an upper limit of six to twelve months for senior executives. The government estimates that approximately 5 million employees in Great Britain are subject to non-compete clauses, typically lasting around six months. The proposed three-month limit, if enacted, would significantly alter current practices, preventing employers from enforcing longer restrictions while still requiring them to demonstrate legitimate business interests for any non-compete of three months or less.

This initiative is part of the UK government's broader strategy for 'Smarter Regulation to Grow the Economy,' which includes reforms to competition and consumer law. The government hopes that by providing employees with more flexibility, it will stimulate the wider economy and increase productivity. This move also follows guidance from the UK Competition and Markets Authority (CMA) in February 2023, which warned businesses about cartel-like behavior related to no-poach and wage-fixing agreements.

Internationally, the US Federal Trade Commission (FTC) has proposed a more drastic measure: an outright ban on employers imposing non-compete clauses. This proposal aims to grant employees greater freedom to move between jobs or start their own businesses, aligning with the UK's goal of fostering a more dynamic labor market.