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Consultancies vulnerable as government plots non-compete axe
The government plans to legislate to reform non-compete clauses across the economy, aiming to make it easier for start-ups and growing firms to hire workers. The change could affect consultancies and other professional services firms by making it easier for senior staff with client relationships to move to competitors.
Details are due early next year, and ministers say the proposals will focus on workers, so equity partners may be excluded. Some firms reportedly have non-competes lasting up to two years; advisers expect restrictions being removed or reduced to increase movement between firms. Employers may rely more on gardening leave and financial incentives to retain staff, while many legal partners are governed by partnership agreements instead.
In short
- Government plans to reform employment non-compete clauses.
- Senior consultancy staff could move more freely between firms.
- Firms may turn to gardening leave and financial incentives.
Steelman: both sides, in good faith
The strongest fair case each way — we don't pick a winner.
The case for
Reforming non-compete clauses could help workers move freely and let start-ups and growing firms hire people with valuable skills and experience. Reducing long restrictions may also widen opportunity across the economy, while employers can still retain staff through pay, incentives or gardening leave.
The case against
Non-compete clauses can protect firms that have invested in developing staff and building client relationships, especially when senior employees could take that knowledge to a direct competitor. Removing or shortening restrictions may make it harder to protect client continuity and confidential business interests, and could prompt firms to rely on costly alternatives such as gardening leave.
Explained simply
Non-compete clauses are contract terms that can stop someone from joining a rival or starting a competing business for a set period after leaving a job. Governments may limit them because they can make it harder for people to change jobs and for newer firms to recruit experienced staff.
Consultancies and other professional services firms often depend on senior employees who manage client relationships and bring specialist knowledge. If those employees can move more freely, their former firm may face greater competition for clients and staff; some firms may instead use paid notice periods or other incentives to encourage people to stay.
The proposed changes are expected to focus on workers, so it is not yet clear whether they would cover equity partners, who partly own a firm. In some professions, including law, partners may be subject to partnership agreements rather than standard employment contracts.
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