Hedge funds and banks say the proposed reform could weaken the competitiveness of UK financial services, while technology groups argue it would help start-ups recruit skilled workers and grow faster.
The City of London has pushed back against Prime Minister Andy Burnham’s plan to restrict non-compete clauses in employment contracts, warning that the move could undermine the competitiveness of Britain’s financial and professional services sectors.
Burnham announced on Friday that the government would legislate to prevent non-compete agreements from obstructing recruitment at promising start-ups and fast-growing companies. The proposal has been welcomed by technology groups but criticised by financial industry representatives.
John Godfrey, a managing director at financial services lobby group TheCityUK, said its members were disappointed, arguing that the changes could put UK financial and professional services firms at a disadvantage.
Non-compete clauses prevent employees from joining competing businesses for a specified period after leaving their jobs. Hedge funds, investment banks and wealth managers use them to reduce the risk of losing key traders, portfolio managers and dealmakers to rivals.
Burnham has described the restrictions as a barrier to innovation, arguing that skilled workers should be able to move between companies or establish their own businesses more freely.
Financial sector warns of unintended consequences
Industry representatives say non-compete agreements help protect intellectual property, client relationships, commercially sensitive information and investments in staff training.
Jiří Król of the Alternative Investment Management Association, which represents hedge funds and private equity firms, warned that the government risked undermining these protections in its effort to support the technology sector.
At major hedge funds, portfolio managers can be required to remain out of the market for 18 months to two years before joining a competitor. For analysts, the restriction can last around a year.
Jillien Flores of the Managed Funds Association said the agreements were essential for protecting proprietary investment strategies.
TheCityUK also warned that employers could respond to a ban by extending staff notice periods. Godfrey argued that any reform should apply only to new employment contracts.
The Confederation of British Industry (CBI) has also questioned the case for change. Matthew Percival, a director at the business lobby group, said companies relied on non-compete clauses to protect sensitive information and support investment in employees and innovation. He added that the CBI had not seen compelling evidence that the clauses significantly restricted innovation or labour mobility.
Around five million employees in Britain are covered by non-compete agreements, which typically last about six months.
Tech groups back greater worker mobility
Technology businesses argue that restrictive employment contracts make it harder for British start-ups to compete with companies in Silicon Valley.
Founders of several leading UK technology companies called on ministers last month to limit the use of non-compete clauses and extended notice periods, saying they hindered recruitment and business growth.
Dom Hallas of the Startup Coalition said reducing these barriers would allow start-ups and scale-ups to hire more quickly and expand, potentially supporting wider UK economic growth.
The government believes companies can protect commercially sensitive information through other measures, including confidentiality clauses and trade secrets legislation.
The debate follows a review launched last year by then prime minister Sir Keir Starmer. Options under consideration ranged from a complete ban to limits on the duration of non-compete agreements, such as a three-month maximum.
California prohibits non-compete clauses, while a proposed nationwide US ban approved by the Federal Trade Commission in 2024 was challenged in court and subsequently abandoned.
Government seeks balance ahead of Budget
The government said it wanted Britain to be an attractive place for businesses to establish themselves, expand and remain, arguing that restrictions on recruitment could hold back innovative companies.
It also stressed its commitment to the financial sector, pointing to pension reforms intended to unlock private investment and changes to listing rules designed to improve the UK’s competitiveness as a financial centre.
Officials are expected to provide further details of the proposed reforms alongside this month’s Budget.
The government’s stated aim is to make it easier for fast-growing sectors, including artificial intelligence, to recruit skilled workers. Financial industry groups, however, argue that any changes must account for the need to protect commercially valuable information and investments in employees.
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