Key Takeaways
- • UK Prime Minister Andy Burnham said on 9 October, at the Innovation Nation Summit in Manchester, that the Government "will legislate" so non-compete clauses "will no longer be a barrier to hiring" for promising startups and scaling firms, and will also address the wider use of restrictive practices.
- • Any reform requires primary legislation, so wholesale changes are unlikely imminently; details could emerge around the 28 October Budget, and the Government's position remains an open question.
- • Asset managers, including private equity sponsors, hedge funds and credit funds, rely on non-competes to protect investment strategies, deal pipelines, fundraising and investor relationships, so any weakening would affect recruitment, retention and succession planning.
- • Industry bodies are already engaging: TheCityUK has voiced concern about an outright ban, while AIMA is consulting members on alternatives including a financial services carve-out, statutory duration caps, salary thresholds, mandatory compensation during restricted periods and treatment of LLP arrangements.
- • Firms are advised to review restrictive covenant frameworks and assess alternatives such as garden leave, confidentiality obligations, non-solicitation and non-dealing covenants, and to examine carried interest, deferred compensation and bad leaver provisions.
Summary
UK Prime Minister Andy Burnham has put reform of non-compete clauses back on the agenda. Speaking on 9 October at the Innovation Nation Summit in Manchester, he described non-competes as a "drag on innovation" and said some businesses have "gone too far" in their use of restrictive practices. The Government will legislate so that non-competes no longer block hiring at the most promising startups and scaling firms, and it will also look to address the wider use of restrictive practices, according to a Labor & Employment alert published by Akin.
The timing and detail of any legislation remain uncertain. Akin expects further information in the coming weeks and months, potentially alongside the Budget on 28 October. Any change will require primary legislation, so wholesale changes are unlikely imminently. Recent reform proposals have ranged from limits on the duration of non-competes to more targeted restrictions on their use. Industry bodies have already begun seeking engagement with the Government. TheCityUK, which represents some of Britain's largest financial groups, has publicly raised concerns about the potential impact of an outright ban. The Alternative Investment Management Association (AIMA) is consulting members and other associations on possible alternatives, including a financial services carve-out, statutory caps on duration, salary thresholds, mandatory compensation during restricted periods, and the treatment of LLP and partnership arrangements.
For asset managers, the stakes are significant. Non-competes are used by hedge funds, private equity sponsors and private credit managers to protect investment strategies, deal pipelines, fundraising efforts and investor and portfolio company relationships. In the hedge fund sector, where firms compete intensely for talent, they are viewed as a key tool for managing risks from rapid moves between platforms. It is unclear whether reforms would be confined to traditional employment or extend to LLP agreements and partnership arrangements, which are commonly used by senior investment professionals and may gain importance as firms weigh employee versus partner/member models. Carried interest, co-investment and long-term incentive arrangements, including bad leaver definitions, forfeiture provisions and deferred compensation, also serve retention purposes, and their treatment may prove as significant as non-compete reform itself.
The UK proposals come against increased US scrutiny of non-competes. The Federal Trade Commission's attempt to impose a nationwide ban was blocked by the courts and is not in force, but several states, most notably California, maintain highly restrictive approaches. Akin suggests the UK reforms may form part of a broader international trend toward greater scrutiny of post-termination restrictions, although significant differences persist across jurisdictions.
Akin advises firms to review existing restrictive covenant frameworks, assess their exposure if non-competes become more limited, and evaluate whether garden leave, confidentiality obligations, and non-solicitation and non-dealing covenants would provide adequate protection in practice. The Prime Minister's reference to wider restrictive practices may also raise questions about other contractual protections. Firms may also wish to engage with industry bodies as proposals develop.
The timing and detail of any legislation remain uncertain. Akin expects further information in the coming weeks and months, potentially alongside the Budget on 28 October. Any change will require primary legislation, so wholesale changes are unlikely imminently. Recent reform proposals have ranged from limits on the duration of non-competes to more targeted restrictions on their use. Industry bodies have already begun seeking engagement with the Government. TheCityUK, which represents some of Britain's largest financial groups, has publicly raised concerns about the potential impact of an outright ban. The Alternative Investment Management Association (AIMA) is consulting members and other associations on possible alternatives, including a financial services carve-out, statutory caps on duration, salary thresholds, mandatory compensation during restricted periods, and the treatment of LLP and partnership arrangements.
For asset managers, the stakes are significant. Non-competes are used by hedge funds, private equity sponsors and private credit managers to protect investment strategies, deal pipelines, fundraising efforts and investor and portfolio company relationships. In the hedge fund sector, where firms compete intensely for talent, they are viewed as a key tool for managing risks from rapid moves between platforms. It is unclear whether reforms would be confined to traditional employment or extend to LLP agreements and partnership arrangements, which are commonly used by senior investment professionals and may gain importance as firms weigh employee versus partner/member models. Carried interest, co-investment and long-term incentive arrangements, including bad leaver definitions, forfeiture provisions and deferred compensation, also serve retention purposes, and their treatment may prove as significant as non-compete reform itself.
The UK proposals come against increased US scrutiny of non-competes. The Federal Trade Commission's attempt to impose a nationwide ban was blocked by the courts and is not in force, but several states, most notably California, maintain highly restrictive approaches. Akin suggests the UK reforms may form part of a broader international trend toward greater scrutiny of post-termination restrictions, although significant differences persist across jurisdictions.
Akin advises firms to review existing restrictive covenant frameworks, assess their exposure if non-competes become more limited, and evaluate whether garden leave, confidentiality obligations, and non-solicitation and non-dealing covenants would provide adequate protection in practice. The Prime Minister's reference to wider restrictive practices may also raise questions about other contractual protections. Firms may also wish to engage with industry bodies as proposals develop.
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